Experience modifier or experience modification is a term used in the American insurance business and more specifically in workers' compensation insurance. It is the adjustment of manual rating based on previous loss experience. Usually three years of loss experience are used to determine the experience modifier for a workers' compensation policy. The three years typically include not the immediate past year, but the three prior. For instance, if a policy expired on January 1, 2007, the data included on the Experience modification would be comprised of the period from to January 1, 2003 January 1, 2006.
Experience modifications are figured using these losses, compared to the losses that are expected based on the business of the employer.
In many states, the Experience Rating Adjustment plan is in place, allowing for the 70% reduction in the reportable amount of the loss if there are no indemnity payments. This gives employers an incentive to return employees to work as soon as possible.
