How is the unmodified premium for a workers' compensation policy calculated?

The calculation of the unmodified premium for a workers' compensation policy is primarily influenced by the experience modifier, often referred to as the experience modification rate (EMR). This factor adjusts the standard premium based on the loss history of the insured business compared to the industry average. A business with better-than-average loss experience will receive a lower premium, while one with worse-than-average loss experience may see an increase in premiums due to this modifier.

In essence, the experience modifier serves to customize the premium to reflect the specific risks associated with a particular employer's workforce and its history of claims. This means that businesses that maintain safer working environments and manage risk effectively can benefit financially through lower premiums.

While assessing the risk level of employees, considering geographical location, or applying a fixed amount premium has relevance in the broader context of insurance, they do not directly affect the calculation of the unmodified premium as significantly as the experience modifier does. The experience modifier specifically adjusts the cost based on actual claims experience, which is why it is the correct answer in this context.