What is the name of the factor used to adjust premiums upwards or downwards based on a company's actual loss experience?

The Experience Modification Factor is a crucial component in the workers' compensation insurance system, particularly in Minnesota. It is a numerical representation that adjusts a company’s insurance premium based on its historical loss experience relative to other similar businesses. This means that if a company has lower losses than expected based on its industry classification, its Experience Modification Factor will be less than 1.0, resulting in lower premiums. Conversely, if a company has higher losses, the factor will be greater than 1.0, leading to higher premiums.

This factor incentivizes employers to maintain safe working environments, as better loss records can significantly reduce their premium costs. It is calculated using a formula that considers the company's actual losses over a specified period compared to the expected losses for similar businesses in the same industry, thereby enabling fairness and reflecting the actual risk involved.

Understanding the Experience Modification Factor is essential for workers' compensation adjusters, as it directly impacts the financial management of coverage costs for employers in Minnesota.