Industrial Engineering

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Costs of accidents

Costs of accidents
The occurrence of any accident will cause both direct and indirect costs. It is important that all of these costs are taken into account when the full cost of an accident is calculated. Different studies shown that indirect costs or hidden costs could be more than 30 times greater than direct costs of an accident. In other words, the direct costs of an accident or disease represent the tip of the iceberg when compared to the overall costs.
Direct costs
These are costs that are directly related to the accident and may be insured or uninsured.
Insured direct costs, normally include:
  • claims on employers and public liability insurance
  • damage to buildings, equipment or vehicles
  • any attributable production and/or general business loss.
Uninsured direct costs, normally include:
  • fines resulting from prosecution by the enforcement authority
  • sick pay
  • some damage to product, equipment, vehicles or process not directly attributable to the accident (e.g. caused by replacement staff)
  • increases in insurance premiums resulting from the accident
  • any compensation not covered by the insurance policy due to an excess agreed between the employer and the insurance company
  • legal representation following any compensation claim.
Indirect costs
Indirect costs are costs which may not be directly attributable to the accident but may result from a series of accidents.
Insured indirect costs, typically include:
  • a cumulative business loss
  • product or process liability claims
  • recruitment of certain replacement staff.
Uninsured indirect costs, can include:
  • loss of goodwill and a poor corporate image
  • accident investigation time and any subsequent remedial action required
  • production delays
  • extra overtime payments
  • lost time for other employees, who attend to the needs of the injured person
  • the recruitment and training of most replacement staff
  • additional administration time incurred
  • lower employee morale possibly leading to reduced productivity
Some of the items mentioned above, such as business loss, may be uninsurable or too prohibitively because of the big amount of money required.

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