What is an EMR Safety Rating?
Experience modifier or experience modification is a term used in the American insurance business and more specifically in workers' compensation insurance. It is the adjustment of annual premium based on previous loss experience. Usually three years of loss experience are used to determine the experience modifier for a workers' compensation policy. The three years typically include not the immediate past year, but the three prior. For instance, if a policy expired on January 1, 2007, the data included on the Experience modification would comprise the period from January 1, 2003 to January 1, 2006.
Experience modifiers are normally recalculated for an employer annually. Each year, a newer year's data is added to the three-year window of experience used in the calculation, and the oldest year from the prior calculation is dropped off. The other two years worth of data in the rating window are also updated on an annual basis.
The experience modifier adjusts workers' compensation insurance premiums for a particular employer based on a comparison of past losses of that employer to what is calculated to be "average" losses of other employers in that state in the same business, adjusted for size. To do this, experience modifier calculations use loss information reported in by an employer's past insurers. This is compared to a calculation of expected losses for a company in that line of work, in that particular state, and adjusted for the size of the employer. The calculation of expected losses utilizes past audited payroll information for a particular employer, by classification code and state. These payrolls are multiplied by Expected Loss Rates, which are calculated by rating bureaus based on past reported claims costs per classification.