Experience Rating

Experience rating is the mechanism that produces your experience modification rate (EMR) — the multiplier that adjusts your workers' comp premium up or down based on your claims history. If your losses are lower than the average for tree service companies in your classification, your EMR drops below 1.0 and you pay less than the manual rate. If your losses are higher than average, your EMR rises above 1.0 and you pay more.

The experience rating calculation uses three to five years of your loss data, excluding the most recent year (because those claims are too new to be fully developed). The formula compares your actual losses against "expected" losses — what an average tree service company of your size would typically incur. Both the frequency and severity of claims affect the calculation, but frequency is weighted more heavily. Five $10,000 claims will raise your EMR more than one $50,000 claim.

For tree service companies, experience rating creates a powerful financial incentive for safety. A tree service with a 0.85 EMR pays 15% less than one with a 1.0 EMR, and a company with a 1.35 EMR pays 35% more. On a $90,000 base workers' comp premium, that spread represents over $45,000 per year. Investing in safety training, proper equipment, and a return-to-work program directly reduces your EMR and your premium.

To qualify for experience rating, your company must meet minimum premium thresholds set by the rating bureau (NCCI in most states). Small tree service companies with very low payroll may not qualify and will pay the manual rate without modification. As your company grows and becomes experience-rated, managing your claims history becomes one of the most impactful financial decisions you make.