A contractor's workers' compensation insurance has an experience modification rate (EMR) of 1.25. If the base premium is $15,000, what is the actual premium?
Correct Answer
D) $18,750
The actual premium equals the base premium multiplied by the EMR: $15,000 × 1.25 = $18,750. An EMR above 1.0 indicates higher than average claims experience, resulting in higher premiums.
Why This Is the Correct Answer
The Experience Modification Rate (EMR) is a multiplier applied to the base workers' compensation premium to adjust for a contractor's claims history. When the EMR is 1.25, it means the contractor pays 25% more than the standard rate due to higher than average claims. The calculation is straightforward: base premium ($15,000) × EMR (1.25) = $18,750. This reflects the insurance company's assessment that this contractor presents higher risk based on past claims experience.
Why the Other Options Are Wrong
Option B: $16,250
$12,000 would result from dividing the base premium by the EMR ($15,000 ÷ 1.25), which is the incorrect mathematical operation for EMR calculations.
Option C: $12,000
$16,250 appears to be a calculation error, possibly from adding 25% of $5,000 instead of 25% of $15,000 to the base premium.
Memory Technique
Remember 'EMR = Expensive More Risk' when above 1.0, and always multiply the base premium by the EMR to get the actual premium.
Reference Hint
Look up Workers' Compensation Insurance and Experience Modification Rate in the Business and Finance Law chapter of your Florida contractor reference manual.
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