How to Calculate Your Controllable Workers’ Comp Premium

Controlling workers’ compensation costs is essential for any business looking to improve financial stability while maintaining a safe and efficient workplace. One of the most critical aspects of managing these costs is understanding controllable premium, which is the additional premium paid due to actual claim history compared to what would have been paid with a zero-claims history.

By calculating controllable premium and tracking it year over year, businesses can assess the effectiveness of their workers’ compensation management program and identify areas for improvement.

Step 1: Calculate Minimum Mod

The first step in determining controllable premium is calculating the minimum experience modification factor (mod)—the lowest possible mod an organization would have with no claims. This number provides a baseline for understanding the impact of claims on premium costs.

To calculate the minimum mod, use the mod worksheet and divide the Stabilizing Value by the Expected Total:

Example Calculation:

• Stabilizing Value: $150,500
• Expected Total: $260,500
• Minimum Mod: 150,500 / 260,500 = 0.58

Comparing this to the current mod provides insight into how much premium is being impacted by actual claims.

• Current Mod Calculation: Actual Losses: $369,000 Expected Total: $260,500 Current Mod: 369,000 / 260,500 = 1.42

This shows a significant deviation from the minimum mod, indicating a substantial financial impact due to claims.

Step 2: Calculate Minimum Premium

Once the minimum mod is determined, the next step is calculating minimum premium, which is the amount an employer would pay if there were no claims.

The manual premium is determined by multiplying payroll (remuneration) by the class code rate.

Example Calculation:

• Payroll: $5,000,000
• Class Code Rate: $3.00 per $100 in payroll
• Manual Premium: ($5,000,000 / 100) × 3.00 = $150,000
• Minimum Premium: 0.58 × $150,000 = $87,000

Step 3: Calculate Controllable Premium

Now, the final step is determining the controllable premium, which is the additional premium paid due to actual claims history. This is found by subtracting the minimum premium from the current premium:

Example Calculation:

• Current Premium: 1.42 × $150,000 = $213,000
• Controllable Premium: $213,000 - $87,000 = $126,000

This means the business is paying $126,000 extra in premium due to past claims.

Why Controllable Premium Matters

Tracking controllable premium year over year allows businesses to measure the effectiveness of their risk management and workers’ compensation cost containment strategies. A rising controllable premium signals a need for stronger safety programs, injury prevention efforts, and better claim management practices.

Strategies to Reduce Controllable Premium

1. Enhance Safety Programs: Implement comprehensive training and workplace safety initiatives to prevent injuries.
2. Improve Return-to-Work Programs: Transition injured employees back to modified duty positions whenever possible to reduce claim costs.
3. Review Claims Handling Procedures: Work closely with insurance adjusters to ensure claims are properly managed and reserves are accurate.
4. Monitor and Adjust Reserves: Ensure loss reserves are realistic to prevent inflated claim costs from affecting future experience mods.
5. Engage Leadership in Cost Control Efforts: Foster a company-wide culture of safety and accountability.

By taking proactive measures, businesses can reduce claims, lower their experience mod, and significantly cut controllable premium costs, leading to improved financial performance and operational stability.

Michael Stack, CEO of Amaxx LLC, is an expert in workers’ compensation cost containment systems and provides education, training, and consulting to help employers reduce their workers’ compensation costs by 20% to 50%.? He is co-author of the #1 selling comprehensive training guide “Your Ultimate Guide to Mastering Workers’ Comp Costs: Reduce Costs 20% to 50%.” Stack is the creator of Injury Management Results (IMR) software and founder of Amaxx Workers’ Comp Training Center. WC Mastery Training teaching injury management best practices such as return to work, communication, claims best practices, medical management, and working with vendors.? IMR software simplifies the implementation of these best practices for employers and ties results to a Critical Metrics Dashboard.

Contact:?[email protected].?

Workers' Comp Roundup Blog:?https://blog.reduceyourworkerscomp.com/

Injury Management Results (IMR) Software: https://imrsoftware.com/?

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