What is the purpose of experience modification rating in workers compensation?

The purpose of experience modification rating in workers' compensation is to provide an incentive for employers to improve workplace safety and reduce the number of workplace injuries. This rating adjusts the employer's workers' compensation insurance premium based on their historical loss experience relative to the average experience of all employers in the same industry. When an employer successfully reduces accidents and claims, their experience modification rating decreases, leading to lower insurance premiums. This creates a financial motivation for employers to invest in safety measures and training, thereby fostering a safer work environment and ultimately benefiting both employees and employers.

In contrast, the other options do not correctly capture the primary function of experience modification ratings in the context of workers' compensation. Adjusting premiums based on future potential losses, determining the duration of benefits, or calculating compensation rates based on age do not align with the core goal of encouraging safer workplaces through the experience modification rating system.