The costs of accidents and ill-health at work

Each year:

• over 1 million injuries and 2.3 million cases of ill-health are experienced by workers;
• around 40 million working days are lost to business; and
• over 25 000 individuals are forced to give up work because of injury or ill health.

These cost British employers an estimated £3.3 to £6.5 billion each year of which £910 to £3710 million comes from accidental damage to property and equipment (1995/96 prices).

Most organisations do not know what accidents and ill-health really cost them in time and money. They are often surprised to find out what the actual costs are.

Examples

• An injury to a worker using an unguarded drill cost a small engineering company £45 000. And that was not all. The managing director was prosecuted. Two employees had to be made redundant to keep the company afloat.
• At the other end of the scale the Piper Alpha explosion killed 167 people and incurred estimated costs of over £2 billion.
• Accidents in construction can account for 3 - 6 % of total project costs.

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The impact on my organisation

What work accidents and ill-health will actually cost your organisation depends on several things, eg:

• how many people work for you;
• how many incidents you have;
• the sort of work you do; and
• the value of your materials, products or services.

The impact of the costs to you depends on your annual turnover and where relevant profit margin.

For companies who may be struggling economically any losses are serious.

Losing skilled workers, even for a few days, can have a bigger effect than direct financial costs might suggest. Many smaller organisations have little cushion against accidental losses. A serious accident could put them out of business. 60% of companies experiencing a disruption lasting more than 9 days go out of business.

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But I have insurance for this, don't I?

Many employers believe that most incident costs are covered by insurance. The reality is usually the opposite.

Insurance policies don't cover everything. They may only pay for serious injuries or damage. Or the policy excess may be greater than the individual amounts concerned. All other costs will have to be met by you.

The most obvious cost is from a person taking time away from work. But there are other costs too. Often these are not readily apparent from the balance sheet.

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Costs not covered by insurance

Many injury and ill-health costs are not covered by insurance. They can include:

• lost time;
• sick pay;
• damage or loss of product and raw materials;
• repairs to plant and equipment;
• extra wages, overtime working and temporary labour;
• production delays;
• investigation time;
• fines;
• loss of contracts;
• legal costs; and
• loss of business reputation.

The amount you can actually recover depends on your individual insurance policy terms.

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How much may not be recovered through insurance?

Uninsured costs vary between businesses and types of incident. They are, however, several times more than the insured costs. They can be likened to an iceberg. The costs recoverable through insurance are visible. But hidden beneath the surface are the uninsured costs. Like an iceberg, most of the costs are not immediately visible.

Insurance costs

Uninsured costs

Studies have given different ratios for these insured to uninsured costs.

1. A study in a cheque-clearing department of a financial institution (a lower risk environment) found the insured: uninsured ratio to be 1:3.3. That means for every £1 recoverable from their insurance, the company had to meet a further £3.30 themselves.
2. HSE studies found that the insurance premium paid: uninsured losses ranged from 1:8 to 1:36. That meant for every £1 they paid in insurance premiums, the companies had to meet a further £8 to £36 themselves for losses arising from accidents.

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Impact on insurance premiums

A poor claims record will affect the amount you pay in insurance premiums. Your insurance premiums can be increased or insurance cover may actually be refused.

Example of poor record

An insurance company became seriously concerned over a foundry with an increasing claims record. They organised a health and safety survey of the foundry. This showed:

• high levels of noise not fully appreciated by the company;
• wearing of hearing protection not being adequately enforced;
• no noise control measures in place, other than hit and miss use of hearing protection;
• no statutory examinations of plant and equipment being done;
• the foundry had been prosecuted for health and safety breaches and substantially fined;
• health and safety documents were sparse and disorganised;
• employees had developed a claims culture; and
• managers appeared to have lost control of health and safety management.

The insurance company considered withdrawing cover. After a meeting with the foundry's Board of Directors, insurance cover was continued. This was subject to:

• a 100% increase in employers' liability insurance (from £100 000 to £200 000 a year);
• mandatory involvement of the insurer's health and safety team;
• the foundry paying for two days health and safety consultancy per month for a 12 month period;
• a situation review after 12 months.

If satisfactory improvements were not made within the year, insurance cover would be withdrawn.

Example of good record

A number of small business in the North West took part in a health and safety support project. Working with independent health and safety advisors they found that they could reduce their insurance premiums.

One construction firm had their premium reduced from £12 000 to £6000 because of the changes they made.

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Business benefits from good health and safety management

Many companies find improving workplace standards provides a financial benefit to the company. Investments are repaid by, for example:

• improved productivity and efficiency;
• less staff absence;
• less staff turnover; and
• improved quality of work.

Tackling the causes of accidental losses is not an unnecessary overhead but an investment in your business. Cost-effective investment in health and safety is as valuable as any other investment in your company. A combination of reducing accident costs and prevention costs, can lead to dramatic savings in your company's bottom line.

Examples:

1. The Cheese Company implemented a major initiative to tackle health and safety across its 10 sites. This helped to reduce accidents by 40% against an increase in productivity of 25%.
2. MEM (an electrical switchgear and wiring accessory maker) found a positive approach to health and safety paid. In 1993 it reported it:
• saved £6000 per year in sick pay costs;
• added £100 000 to the division's revenues from raised productivity following the reduction in working days lost because of accidents;
• created an efficiency benefit of £60 000 from reduced risks of Repetitive Strain Injury; and
• the average piece rate performance increased by 6%.
3. South West Water saved £2 546 000 by accident prevention alone from April 1992 to March 1998.

Further examples can be found on the case studies database. If you wish to view this now, please click here.

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How good companies view health and safety

Companies are operating in an increasingly harsh business environment. Many are living with very small margins and tight cash flows. Investors, suppliers and customers are taking an increasing interest in companies' health and safety performance.

Organisations with high standards of health and safety are often the most successful. This is irrespective of their size or industry. They view losses from accidents and ill-health just like any other type of loss - they must be controlled. They apply effective management to health and safety. They integrate health and safety into the overall management agenda.

They see the positive business benefits are wider than just the financial costs. Lost service or reduced time means poorer service quality. This can lead to customer dissatisfaction and loss of future business.

Successful companies share the view that: Good health and safety really is good business.

If you wish to download a summary leaflet on this topic

• Please click here for a version in English
• Please click here for a version in Welsh

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