An experience modification factor below 1.00 indicates what about the loss experience?

• A. A worse than average loss experience.
• B. A better than average loss experience.
• C. An average loss experience.
• D. An insufficient amount of data to calculate loss experience.

Answer: (B)

The main concept here is how the experience modification factor (EMF) reflects how your past losses compare to what’s expected for your payroll class, and how that affects your premium. When the EMF is below 1.00, it means your loss experience has been better than average for your industry and payroll level. Fewer or less severe claims than expected signal to the insurer that you’re safer or less costly to cover, so the premium is adjusted downward. If losses are worse than expected, the EMF would rise above 1.00, and if losses match expectations, it would be about 1.00. An EMF can’t be below 1.00 due to insufficient data; insufficient data would prevent calculating a reliable EMF in the first place. Therefore, a value under 1.00 clearly indicates a better than average loss experience.