A contractor has a workers' compensation experience modification rate (EMR) of 1.15. If the standard premium would be $45,000, what is the actual premium with the modifier applied?
Correct Answer
C) $51,750
The calculation is: $45,000 × 1.15 = $51,750. An EMR above 1.0 indicates higher than average claims experience and increases the premium accordingly.
Why This Is the Correct Answer
The Experience Modification Rate (EMR) is a multiplier applied to the standard workers' compensation premium to adjust for a contractor's claims history. When the EMR is 1.15, it means the contractor pays 115% of the standard premium due to higher than average claims. The calculation is straightforward: $45,000 × 1.15 = $51,750. This reflects the insurance company's assessment that this contractor poses a 15% higher risk than the industry average.
Why the Other Options Are Wrong
Option A: $52,250
This answer of $52,250 would result from multiplying by 1.161 instead of 1.15, representing an error in the EMR application.
Option B: $50,750
This answer of $51,250 would result from multiplying by 1.139 instead of 1.15, showing an incorrect understanding of the EMR factor.
Option D: $51,250
This answer of $50,750 would result from multiplying by 1.128 instead of 1.15, which is an incorrect EMR calculation.
Memory Technique
Think 'EMR = Easy Math Ratio' - it's just basic multiplication. EMR over 1.0 = pay MORE, EMR under 1.0 = pay LESS.
Reference Hint
Look up workers' compensation insurance and experience modification rates in the Business and Finance Law chapter of your Florida contractor reference manual.
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