Calculate the workers' compensation experience modification factor for a contractor with actual losses of $45,000 and expected losses of $60,000:
Correct Answer
D) 0.75
Experience modification factor = Actual losses ÷ Expected losses = $45,000 ÷ $60,000 = 0.75
Why This Is the Correct Answer
The experience modification factor (EMR or X-Mod) is calculated by dividing actual losses by expected losses: $45,000 ÷ $60,000 = 0.75. An EMR below 1.0 indicates a better-than-average safety record, which results in a credit (lower workers' compensation premium). An EMR of 0.75 means the contractor pays only 75% of the standard industry premium rate.
Why the Other Options Are Wrong
Option A: 1.33
1.33 would result from dividing expected losses by actual losses ($60,000 ÷ $45,000 = 1.33)—the formula inverted. An EMR above 1.0 indicates worse-than-average losses and a surcharge on premiums, which is the opposite of this scenario where actual losses are lower than expected.
Option B: 0.67
0.67 does not result from any straightforward calculation with these figures. It may be confused with a rounded approximation, but 45/60 = 0.75, not 0.67.
Option C: 1.25
1.25 does not result from the correct EMR formula using these numbers. It may be derived from an error such as ($60,000 − $45,000) ÷ $60,000 + 1 = 1.25, but this is not how experience modification is calculated.
Memory Technique
EMR = Actual ÷ Expected. Think of it as your 'grade': if you did better than expected (actual < expected), your score is below 1.0 (like scoring 75% when the class average is 100%). If you did worse, your score is above 1.0. Better performance = lower number = lower premium.
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