What is the main purpose of an experience modification factor in workers' compensation?

The main purpose of an experience modification factor in workers' compensation is to adjust premiums based on a business's claims experience. This factor is calculated by comparing the business's loss history to the average losses of similar businesses within the same industry. A lower experience modification factor indicates that the business has fewer claims or less severe claims than average, which can result in lower premiums. Conversely, a higher factor suggests greater claims experience, leading to increased premiums. This system incentivizes businesses to maintain safe work environments and reduce workplace injuries, as better safety practices can lead to lower insurance costs. The experience modification factor is crucial for balancing the costs of insurance with the risk presented by each specific business.