Workers compensation insurance carriers use an experience modification factor (EMF) or an experience modification rate (EMR) to assist them in determining the premium for a company. Generally, these rates are calculated using the loss and claim information from a company for the first three years of the past four years. This means that four years back from the current policy date, the first three years are reviewed for the number and severity of claims and then assigned a factor or rate according to the companies experience. By reducing the number of injuries, thereby reducing the number of claims, reduces the experience modification factor or rate. When a company has an experience modification rate or experience modification factor of 1.0, this is considered average for the industry in which the company is involved and the company pays 100% of the average premium. When the rate or factor is 1.2 the company pays 120% of the average premium. Conversely, when the rate or factor is at 0.95, or even 0.90 the company is paying 95% or 90% of the average premium.

Example 2A: The table below shows the premium for a company paying the average premium with a EMF or EMR of 1.0, also for the same company depending on if their claim history was better than average having an EMF or EMR of 0.90 or if their claim history was worse than average 1.2:

Workers’ Compensation Annual Premium of $8,500.00

EMF/EMR = 1.0, premium is $8,500.00

EMF/EMR = 0.90, premium is $7,650.00 gaining $350.00 in profit

EMF/EMR = 1.2, premium is $10,200.00 losing $1,700.00 in profit