In the insurance industry in the United States, an experience modifier or experience modification is an adjustment of an employer's premium for worker's compensation coverage based on the losses the insurer has experienced from that employer.
An experience modifier of 1 would be applied for an employer that had demonstrated the actuarially expected performance.
[citation needed] Experience modifiers are calculated by organizations known as "rating bureaus" and rely on information reported by insurance companies.
Other states such as Wisconsin, Texas, New York, New Jersey, Indiana, and North Carolina, maintain their own rating bureaus but integrate with NCCI for multi-state employers.
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.
Errors in experience modifiers can occur if inaccurate information is reported to a rating bureau by a past insurer of an employer.
Most states allow increases in experience modifiers if done relatively early in the term of the workers compensation insurance policy, and most states prohibit increases in experience modifier late in the term of the policy.
The detailed rules governing calculation of experience modifiers are developed by the various rating bureaus.
Although all states use similar methodology, there can be differences in details in the formulas used by independent rating bureaus and the NCCI.
In many NCCI states, the Experience Rating Adjustment plan is in place, allowing for the 70% reduction in the reportable amount of medical-only claims.
In the EMR calculation there are 4 fundamental losses that are necessary for the calculation, they are: The losses that are not part of this fundamental 4 are, Unemployment insurance is experience rated in the United States; companies that have more claims resulting from past workers face higher unemployment insurance rates.