Empirical Evidence of Factors Affecting Experience Modification Rate Used by the U.S. Insurance Industry

ABSTRACT

The improvement of safety programs is of significant importance to the economy of countries that move toward a global perspective. The objective of Experience Modification Ratings (EMR) is to encourage employers, through management incentives, to reduce the frequency and severity of work-related injuries. The insurance industry uses EMR to assess premiums. A U.S. national survey was conducted to investigate EMR determinants. EMR and its average (AEMR) are hypothesized to vary inversely with the number of training hours, number of safety audits, the company's annual revenue, and the annual cost of safety training per employee. The empirical findings indicated the number of training hours was significant while revenue was highly significant. This paper offers practical and policy implications with respect to these findings.

KEYWORDS:

• Experience modification ratings
• insurance industry
• management
• safety management

The authors wish to thank William Bannister, Operator Qualification (OQ) Coordinator of BP Pipelines (North America), Inc. for his assistance in conducting a survey for this project. The authors also thank all of the respondents for their interest in and support of this research.

Notes

Notes: Variables in this frequency table are ordinal variables with natural order. See description in Table 1.

Notes: ∗Correlation is significant at the 0.05 level (2-tailed).

∗∗Correlation is significant at the 0.01 level (2-tailed).

Notes: t statistics are in parentheses. Significant level: ∗0.10, ∗∗0.05, ∗∗∗0.01 VIF = Variance inflation factor, a measure of collinearity.

Additional information

Notes on contributors

Tantatape Brahmasrene

Tantatape Brahmasrene is Professor of Business at the College of Business, Purdue University North Central, Westville, Indiana.

Sarah Sanders Smith

Sarah Sanders Smith is Assistant Professor of Organizational Leadership & Supervision at the College of Business, Purdue University North Central, Westville, Indiana.