What is the name of the factor that adjusts premiums based on an employer's actual loss experience in Workers Compensation insurance?

The experience modification factor is a crucial component in determining Workers Compensation insurance premiums, as it specifically adjusts these premiums based on an employer's actual loss experience over a designated period. This factor provides an insight into how well the employer has managed their workplace risks compared to the industry average.

When an employer has a lower frequency or severity of claims than expected, the experience modification factor will decrease the premium, reflecting the reduced risk. Conversely, if an employer has a higher loss experience, the factor will increase, resulting in higher premiums. This system incentivizes employers to implement effective safety measures and injury prevention strategies, as it directly affects their insurance costs.

In contrast, the loss ratio factor generally refers to the ratio of losses to premiums, but it does not specifically adjust for an individual employer's loss history. The payroll adjustment factor is used to account for changes in an employer's payroll over time rather than their loss experience. The safety incentive factor might encourage safe practices but does not directly relate to the calculation of premiums based on past losses. Therefore, the experience modification factor is the specific term that accurately describes the adjustment based on an employer’s loss experience.