Experience rating modifies workers' compensation premiums based on which factor?

Experience rating modifies workers' compensation premiums based on which factor?

• A. Industry averages
• B. Employer's own loss history
• C. Payroll growth
• D. Underwriting guidelines

Answer: (B)

Experience rating in workers’ compensation adjusts the premium based on the employer’s own loss history. The insurer uses the employer’s past claims to create an experience modification factor, showing how actual losses compare to what’s expected for that type of business and payroll level. If losses are low or cost-effective, the modification lowers the premium; if losses are high, the modification increases it. This ties the premium more closely to how the employer actually performs in safety and claims management, rather than to industry-wide averages alone. Industry averages help set base rates, but the adjustment you see from experience rating is driven by the employer’s own claims history. Payroll growth affects exposure and base premium, not the modification factor itself, and underwriting guidelines relate to eligibility and pricing policy rather than this loss-driven adjustment.

Experience rating in workers’ compensation adjusts the premium based on the employer’s own loss history. The insurer uses the employer’s past claims to create an experience modification factor, showing how actual losses compare to what’s expected for that type of business and payroll level. If losses are low or cost-effective, the modification lowers the premium; if losses are high, the modification increases it. This ties the premium more closely to how the employer actually performs in safety and claims management, rather than to industry-wide averages alone. Industry averages help set base rates, but the adjustment you see from experience rating is driven by the employer’s own claims history. Payroll growth affects exposure and base premium, not the modification factor itself, and underwriting guidelines relate to eligibility and pricing policy rather than this loss-driven adjustment.