Financial Costs of Accidents PDF

1.1 Morals & Money Financial Costs of Incidents (Insured & Uninsured) The benefits of health and safety cannot be measured in the standard way of using sales forecasts, but there are significant cost bene- fits that you need to be aware of and to utilise as a way of persuading management that...

1.1 Morals & Money Financial Costs of Incidents (Insured & Uninsured) The benefits of health and safety cannot be measured in the standard way of using sales forecasts, but there are significant cost bene- fits that you need to be aware of and to utilise as a way of persuading management that there is a need to invest in improving health and safety. Health and safety is deeply rooted within the means to prevent accident and injury. It is when such events take place that the true costs of the failure to manage safety are most apparent. In the UK legally, an employer must have Employers’ Liability Insurance to insure against the injury or ill-health of employees. This insurance must be a minimum cover of five million pounds. This is required under the Employers’ Liability (Compulsory Insurance) Act 1969. Direct and indirect costs When an accident occurs, there are two types of costs that are accrued: Direct costs are concerned with the immediate costs of the accident and will include damage to any equipment, the loss of the worker if they have to take a leave of absence and potentially fines or compensation. Some of which may be insurable. Indirect costs are concerned with the less obvious costs, such as replacement labour, clean up after the incident, loss of sales, and loss of confidence of the workforce, which may result in employees deciding to leave the company. In general, you cannot insure against indirect cost. The following diagram illustrates that the insured costs are just the tip of the iceberg. Beneath are far more substantial costs that cannot be insured against. Insured Costs You are responsible for the health and safety of your employees while they are at work. In some countries, employers must have insurance to cover for injuries and ill health experienced by their employees while at work. Employers may also have insurance for accidents involving vehicles, and possibly third-party, buildings insurance or product liability insurance. However, insurance policies only cover a small proportion of the costs of accidents. It is important you check your organisation’s policy to understand the scope of cover. Uninsured costs The uninsured costs are estimated at about ten times the amount of the actual incident. These consist mostly of indirect costs, such as, the repair or replacement of damaged machinery or work equipment and the need to hire additional equipment or additional labour. Effective health and safety can improve production and product quality, and boost motivation within the workforce. This in turn helps to lower the staff turnover rate and to save on such costs as retraining and job advertising. A motivated workforce and improved productivity have a positive impact on the organisation’s image and reputation, which will help with the development of goodwill and stronger relationships with other organisations, resulting in further business and profitability. Ineffective health and safety conversely, is costly in terms of the need to tender for new business which may have been lost, which costs money and time. And of course, time is money. Through the reduction of accidents and claims, insurance issues are less costly. If organisations can demonstrate compliance, they can achieve lower premiums. In addition, internal resources are not drained due to accident and incident investigations, attending court and facilitating enforcement officer visits, all of which can be very time consuming if the organisation is constantly involved with incidents. And should an inspector need to visit site this will result in a Fee for Intervention (FFI) from the HSE. More examples of uninsured costs include: Product and material damage Lost production time Legal costs Overtime and temporary/relocated labour Investigation time/administration Supervisors/first aider time Additional recruitment/training Fines Loss of expertise/experience Loss of morale/bad publicity Example – accident-related costs An employee at a small engineering firm, which employs 15 workers, gets their sleeve caught on a rotating drill. This results in the employee breaking both bones in their lower arm and having to spend 12 days in hospital. Due to the extent of the injury, the employee is unable to work for 3 months. Upon their return to work, they spend the next 5 months on admin duties, meaning that they are unable to operate machinery for a total of 8 months. As a result of this accident, the Managing Director is prosecuted, and two employees are made redundant to prevent the company going out of business. Below is an example of potential costs to the engineering firm (use the currency relevant to your country):