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Thursday, 31 March 2011 15:19

Work-Related Accident Costs

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Workers who are the victims of work-related accidents suffer from material consequences, which include expenses and loss of earnings, and from intangible consequences, including pain and suffering, both of which may be of short or long duration. These consequences include:

  • doctor’s fees, cost of ambulance or other transport, hospital charges or fees for home nursing, payments made to persons who gave assistance, cost of artificial limbs and so on
  • the immediate loss of earnings during absence from work (unless insured or compensated)
  • loss of future earnings if the injury is permanently disabling, long term or precludes the victim’s normal advancement in his or her career or occupation
  • permanent afflictions resulting from the accident, such as mutilation, lameness, loss of vision, ugly scars or disfigurement, mental changes and so on, which may reduce life expectancy and give rise to physical or psychological suffering, or to further expenses arising from the victim’s need to find a new occupation or interests
  • subsequent economic difficulties with the family budget if other members of the family have to either go to work to replace lost income or give up their employment in order to look after the victim. There may also be additional loss of income if the victim was engaged in private work outside normal working hours and is no longer able to perform it.
  • anxiety for the rest of the family and detriment to their future, especially in the case of children.

 

Workers who become victims of accidents frequently receive compensation or allowances both in cash and in kind. Although these do not affect the intangible consequences of the accident (except in exceptional circumstances), they constitute a more or less important part of the material consequences, inasmuch as they affect the income which will take the place of the salary. There is no doubt that part of the overall costs of an accident must, except in very favourable circumstances, be borne directly by the victims.

Considering the national economy as a whole, it must be admitted that the interdependence of all its members is such that the consequences of an accident affecting one individual will have an adverse effect on the general standard of living, and may include the following:

  • an increase in the price of manufactured products, since the direct and indirect expenses and losses resulting from an accident may result in an increase in the cost of making the product
  • a decrease in the gross national product as a result of the adverse effects of accidents on people, equipment, facilities and materials; these effects will vary according to the availability in each country of workers, capital and material resources
  • additional expenses incurred to cover the cost of compensating accident victims and pay increased insurance premiums, and the amount necessary to provide safety measures required to prevent similar occurrences.

 

One of the functions of society is that it must protect the health and income of its members. It meets these obligations through the creation of social security institutions, health programmes (some governments provide free or low-cost medical care to their constituents), injury compensation insurance and safety systems (including legislation, inspection, assistance, research and so on), the administrative costs of which are a charge on society.

The level of compensation benefits and the amount of resources devoted to accident prevention by governments are limited for two reasons: because they depend (1) on the value placed on human life and suffering, which varies from one country to another and from one era to another; and (2) on the funds available and the priorities allocated for other services provided for the protection of the public.

As a result of all this, a considerable amount of capital is no longer available for productive investment. Nevertheless, the money devoted to preventive action does provide considerable economic benefits, to the extent that there is a reduction in the total number of accidents and their cost. Much of the effort devoted to the prevention of accidents, such as the incorporation of higher safety standards into machinery and equipment and the general education of the population before working age, are equally useful both inside and outside the workplace. This is of increasing importance because the number and cost of accidents occurring at home, on the road and in other non-work-related activities of modern life continues to grow. The total cost of accidents may be said to be the sum of the cost of prevention and the cost of the resultant changes. It would not seem unreasonable to recognize that the cost to society of the changes which could result from the implementation of a preventive measure may exceed the actual cost of the measure many times over. The necessary financial resources are drawn from the economically active section of the population, such as workers, employers and other taxpayers through systems which work either on the basis of contributions to the institutions that provide the benefits, or through taxes collected by the state and other public authorities, or by both systems. At the level of the undertaking the cost of accidents includes expenses and losses, which are made up of the following:

  • expenses incurred while setting up the system of work and the related equipment and machinery with a view to ensuring safety in the production process. Estimation of these expenses is difficult because it is not possible to draw a line between the safety of the process itself and that of the workers. Major sums are involved which are entirely expended before production commences and are included in general or special costs to be amortized over a period of years.
  • expenses incurred during production, which in turn include: (1) fixed charges related to accident prevention, notably for medical, safety and educational services and for arrangements for the workers’ participation in the safety programme; (2) fixed charges for accident insurance, plus variable charges in schemes where premiums are based on the number of accidents; (3) varying charges for activities related to accident prevention (these depend largely on accident frequency and severity, and include the cost of training and information activities, safety campaigns, safety programmes and research, and workers’ participation in these activities); (4) costs arising from personal injuries (These include the cost of medical care, transport, grants to accident victims and their families, administrative and legal consequences of accidents, salaries paid to injured persons during their absence from work and to other workers during interruptions to work after an accident and during subsequent inquiries and investigations, and so on.); (5) costs arising from material damage and loss which need not be accompanied by personal injury. In fact, the most typical and expensive material damage in certain branches of industry arises in circumstances other than those which result in personal injury; attention should be concentrated upon the few points in common between the techniques of material damage control and those required for the prevention of personal injury.
  • losses arising out of a fall in production or from the costs of introducing special counter-measures, both of which may be very expensive.

 

In addition to affecting the place where the accident occurred, successive losses may occur at other points in the plant or in associated plants; apart from economic losses which result from work stoppages due to accidents or injuries, account must be taken of the losses resulting when the workers stop work or come out on strike during industrial disputes concerning serious, collective or repeated accidents.

The total value of these costs and losses are by no means the same for every undertaking. The most obvious differences depend on the particular hazards associated with each branch of industry or type of occupation and on the extent to which appropriate safety precautions are applied. Rather than trying to place a value on the initial costs incurred while incorporating accident prevention measures into the system at the earliest stages, many authors have tried to work out the consequential costs. Among these may be cited: Heinrich, who proposed that costs be divided into “direct costs” (particularly insurance) and “indirect costs” (expenses incurred by the manufacturer); Simonds, who proposed dividing the costs into insured costs and non-insured costs; Wallach, who proposed a division under the different headings used for analysing production costs, viz. labour, machinery, maintenance and time expenses; and Compes, who defined the costs as either general costs or individual costs. In all of these examples (with the exception of Wallach), two groups of costs are described which, although differently defined, have many points in common.

In view of the difficulty of estimating overall costs, attempts have been made to arrive at a suitable value for this figure by expressing the indirect cost (uninsured or individual costs) as a multiple of the direct cost (insured or general costs). Heinrich was the first to attempt to obtain a value for this figure and proposed that the indirect costs amounted to four times the direct costs—that is, that the total cost amounts to five times the direct cost. This estimation is valid for the group of undertakings studied by Heinrich, but is not valid for other groups and is even less valid when applied to individual factories. In a number of industries in various industrialized countries this value has been found to be of the order of 1 to 7 (4 ± 75%) but individual studies have shown that this figure can be considerably higher (up to 20 times) and may even vary over a period of time for the same undertaking.

There is no doubt that money spent incorporating accident prevention measures into the system during the initial stages of a manufacturing project will be offset by the reduction of losses and expenses that would otherwise have been incurred. This saving is not, however, subject to any particular law or fixed proportion, and will vary from case to case. It may be found that a small expenditure results in very substantial savings, whereas in another case a much greater expenditure results in very little apparent gain. In making calculations of this kind, allowance should always be made for the time factor, which works in two ways: current expenses may be reduced by amortizing the initial cost over several years, and the probability of an accident occurring, however rare it may be, will increase with the passage of time.

In any given industry, where permitted by societal factors, there may be no financial incentive to reduce accidents in view of the fact that their cost is added to the production cost and is thus passed on to the consumer. This is a different matter, however, when considered from the point of view of an individual undertaking. There may be a great incentive for an undertaking to take steps to avoid the serious economic effects of accidents involving key personnel or essential equipment. This is particularly so in the case of small plants which do not have a reserve of qualified staff, or those engaged in certain specialized activities, as well as in large, complex facilities, such as in the process industry, where the costs of replacement could surpass the capacity to raise capital. There may also be cases where a larger undertaking can be more competitive and thus increase its profits by taking steps to reduce accidents. Furthermore, no undertaking can afford to overlook the financial advantages that stem from maintaining good relations with workers and their trade unions.

As a final point, when passing from the abstract concept of an undertaking to the concrete reality of those who occupy senior positions in the business (i.e., the employer or the senior management), there is a personal incentive which is not only financial and which stems from the desire or the need to further their own career and to avoid the penalties, legal and otherwise, which may befall them in the case of certain types of accident. The cost of occupational accidents, therefore, has repercussions on both the national economy and that of each individual member of the population: there is thus an overall and an individual incentive for everybody to play a part in reducing this cost.

 

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Contents

Preface
Part I. The Body
Part II. Health Care
Part III. Management & Policy
Part IV. Tools and Approaches
Part V. Psychosocial and Organizational Factors
Part VI. General Hazards
Part VII. The Environment
Part VIII. Accidents and Safety Management
Accident Prevention
Resources
Audits, Inspections and Investigations
Safety Applications
Safety Policy and Leadership
Safety Programs
Part IX. Chemicals
Part X. Industries Based on Biological Resources
Part XI. Industries Based on Natural Resources
Part XII. Chemical Industries
Part XIII. Manufacturing Industries
Part XIV. Textile and Apparel Industries
Part XV. Transport Industries
Part XVI. Construction
Part XVII. Services and Trade
Part XVIII. Guides

Accident Prevention Additional Resources

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