The first is to tailor the price you pay for workers compensation to the insurance carrier s cost of providing that insurance. Since no two employers in the same industry will have similar claims histories, fairness requires that the employer with the greater claims burden pay more. The second goal is to provide employers with the financial incentive to improve the safety of their workplace. When someone knows that he or she will have to contribute towards the cost of their claims, they are more inclined operate a safe workplace. Modifiers are applied to the policies of employers whose premium is above a certain threshold.
Experience rating is mandatory.
If it were not, anyone with a factor greater than 1.00 would just opt out of the plan. In most states experience modifications are calculated by the NCCI on behalf of the insurance companies that consist of its membership. The NCCI is a private for-profit corporation. Originally it was established and funded by the insurance industry. It provides the actuarial, statistical, and rule-making apparatus that is the underpinning of workers compensation pricing in the United States.