The ____ factor is based on the insured's incurred losses for the three years prior to the policy year.

The ____ factor is based on the insured's incurred losses for the three years prior to the policy year.

• A. Experience Mod
• B. Estimated Premium
• C. Rate
• D. Payroll

Answer: (A)

Experience modification is the premium adjustment that reflects an insured’s loss history and safety performance. For workers’ compensation, this factor is calculated using the insured’s incurred losses from the prior three policy years, before the current policy year begins. By comparing actual losses to expected losses for that three-year period, the modification either reduces or increases the base rate applied to payroll to determine the final premium. If losses are below what would be expected for the payroll and job classification, the experience modification will be less than 1.0, lowering the premium; if losses are higher, it pushes the factor above 1.0, increasing the premium. This makes the experience modification the specific measure tied to past losses over the three-year window. The other options don’t fit because the estimated premium is a forecast, the rate is the base price per unit of exposure, and payroll is the amount used to calculate the base premium—not the loss-based adjustment described here.

Experience modification is the premium adjustment that reflects an insured’s loss history and safety performance. For workers’ compensation, this factor is calculated using the insured’s incurred losses from the prior three policy years, before the current policy year begins. By comparing actual losses to expected losses for that three-year period, the modification either reduces or increases the base rate applied to payroll to determine the final premium. If losses are below what would be expected for the payroll and job classification, the experience modification will be less than 1.0, lowering the premium; if losses are higher, it pushes the factor above 1.0, increasing the premium. This makes the experience modification the specific measure tied to past losses over the three-year window. The other options don’t fit because the estimated premium is a forecast, the rate is the base price per unit of exposure, and payroll is the amount used to calculate the base premium—not the loss-based adjustment described here.