A contractor's employee is injured and files a workers' compensation claim for $45,000. The contractor's experience modification rate increases from 1.0 to 1.3. If the base premium was $8,000, what is the new annual premium?
Correct Answer
D) $10,400
New premium = Base premium × Experience modification rate = $8,000 × 1.3 = $10,400
Why This Is the Correct Answer
The experience modification rate (EMR) is a multiplier applied directly to the base premium. New Premium = Base Premium × EMR = $8,000 × 1.3 = $10,400. The $45,000 claim amount is included as context/distractor but is not part of the premium calculation — the EMR already incorporates the claims history.
Why the Other Options Are Wrong
Option A: $11,200
$11,200 does not result from the correct formula. This figure might come from incorrectly adding a portion of the claim ($45,000) to the base premium or using a wrong multiplier.
Option B: $12,000
$12,000 results from multiplying $8,000 × 1.5, not × 1.3. This is a common error when candidates misread or misapply the EMR given in the problem.
Option C: $9,400
$9,400 does not match any correct application of the formula. This might result from adding $1,400 to the base premium rather than multiplying by the EMR.
Memory Technique
EMR = Earnings Multiplier on Risk. It MULTIPLIES your base premium: $8,000 × 1.3 = $10,400. The claim amount ($45,000) is bait — ignore it. Only Base Premium × EMR matters.
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