It is also important that you understand the implications of your experience modifier or EM. The purpose of the experience modifier is to adjust the premium to reflect the loss experience of your own company.

Your previous 3 years losses are compared to future expected losses. Your previous 3 years audited payrolls are multiplied by an expected loss ratio which is calculated for each classification by averaging all losses of all businesses in that classification in your state per hundred dollars of payroll. You will be rewarded if your loss results are lower than the average for like businesses and you will be penalized if your loss results are greater than the average for like businesses. If your company classifications change, your EM must be recalculated to reflect that change.

When confirming that your EM has been calculated correctly, be sure to carefully review your loss runs provided by the insurance carrier. There are critical time deadlines for reviewing, closing and revising reserves on open claims in order to affect a certain year's calculations. Check for open claims and closed claims, loss reserves that have been increased or decreased, claims which have closed for less than the reserve, claims which have been successfully subrogated by your carrier, and for injury code variances. All these will impact your EM. Other factors affecting your EM include using less than 3 years of data if yours is a rapidly expanding business, changes in ownership, merge or acquisition or another company, or disposing of a portion of your company.