AmTrustGroup has put together a fantastic explanation of Experience modifiers. Visit their official website to learn more.
Excerpt:
Worker’s Compensation is a class-rated insurance program. That is, within a state, an insurance company applies the same rate to all employers who fall into a given class. For example, all plumbers are subject to the plumbing rate, all truck drivers are subject to the truck driver rate, etc. The rate applied in each class is an average rate, and does not recognize any individual characteristic of the employer. Because of this, there is a need for a statistically supported means of differentiating one business in a given class from another, for the purpose of determining policy premiums. This is where experience rating comes in – the great equalizer.