Sigma-One Advantage: Cost Savings
Self-insurance for workers' compensation in New Hampshire is felt to be the lowest cost workers' compensation coverage companies can buy. Cost savings are realized by Sigma-One Members, over time, in a number of ways.
Long-term control of losses results in a lower Experience Modification factor. This translates into a lower cost for a Member's annual premium.
Control of claim costs results in the ability to keep rates stable and low. All of the self-insurance groups in New Hampshire perform better than the commercial insurance market. The Trusts typically have average loss ratios of 40% to 50% (they spend approximately 40 cents to 50 cents of every premium dollar to pay claims) while the commercial insurance industry typically averages in the 75% to 100% range for New Hampshire (this means they spend 75 cents to one dollar on claims for every premium dollar they collect). It is easier for the trusts to be more "profitable" if their losses are significantly lower.
If a Trust "makes" money, that money is eventually earmarked as a surplus and is returned to the Member of the Trust. The goal of Sigma-One is not to unnecessarily accumulate a surplus but to keep rates consistent and reasonably generate a surplus that can be returned to the Membership for most years.
If the Trust "loses" money for a year, the Members are responsible to make up that loss in the form of an assessment or through other methods that do not require the Members to actually pay extra premium. Although a Trust having a losing year is possible, it has only happened in New Hampshire for one Trust, for one year, out of approximately 180 years of Trust operations in the State. Our Actuaries advise us that the potential for a well run Trust to have a losing year are minimal, at best.
The money the Trust charges for premium belongs to the Trust. While it is waiting to be spent on claims and Trust expenses, it is invested and any return made on the investments, becomes property of the Trust and not some insurance company. The Trust's investments are very conservative in nature and are geared towards earning between 4% and 6% per year. This would make every premium dollar worth $1.04 to $1.06 which helps in making it easier to run the Trust and easier to keep the operation stable.
