What does the experience modifier factor indicate in premium computation?

The experience modifier factor plays a crucial role in determining an employer's workers' compensation insurance premium based on that employer's historical claims experience. It is a numerical representation that reflects how the company's past claims compare to the average claims for similar businesses in the same industry.

A modifier greater than 1.0 indicates that the employer has experienced more claims than average, resulting in a higher premium, while a modifier less than 1.0 suggests fewer claims, leading to a lower premium. This factor encourages workplace safety and loss control by financially incentivizing employers to reduce incidents and claims, as their experience directly impacts their cost of insurance.

Understanding the experience modifier factor is essential for businesses, as it directly correlates premiums with their claims history, allowing for a more tailored approach to managing insurance costs based on actual risk rather than just industry averages.