Accidents happen, we know. Your employee rear-ends someone in traffic, is hurt and seriously injures the other driver. Your insurance carrier pays the damages, and you think the matter has ended, right? No so fast. These damages are called direct loss costs. Direct loss costs are easy to quantify. They are insurance premiums; the amount paid to repair damaged equipment or medical costs to heal the injuries; costs to defend the claim; lost wages; fines imposed by regulators; deductible costs; and amounts spent to pay claims.
After you quantify the costs of insurance and direct loss costs to your organization, including deductibles or retentions, you should also consider the indirect loss costs. If you think of a claim or injury as an iceberg, you will find that the majority of the accident costs lie below the surface. These indirect costs are much more difficult to quantify and therefore, they may go unnoticed by your organization. Experts contend that the indirect costs of accidents and injuries can exceed the direct loss costs by as much as seven times.
Here are a few indirect loss costs.
- Administrative costs to administer the claim and the resultant damages.
- Higher workers’ compensation experience rating, which increase premiums.
- Lost productivity due to retraining.
- The cost to hire temporary workers to meet production goals or staffing requirements.
- An inability to meet pre-injury production benchmarks.
- Replacement or downtime of damaged equipment or tools.
- Cost of lost opportunity due to an inability to respond to market prospects.
- Time lost by other employees impacted by the incident.
- Lowered morale that inevitably occurs post injury, especially when injured employees do not return to work immediately.
- Time spent investigating the claim and possibly in its defense via deposition, mediations or trial.
- Damage to your organization’s reputation after high-profile adverse events.
- Business costs to relocate when business interruption coverage is not purchased.
Some businesses take years to recover from a loss; other organizations never recover. Consider the small business owner who is embezzled by a trusted employee. The owner may never recoup the losses and in fact have to shutter the business. Or a larger organization may suffer intangible losses of intellectual capital after a particularly ugly employment claim.
It pays to quantify losses so that your management team understands the total cost of losses. When reviewing losses, be sure to estimate the indirect costs to your organization, as well as the direct costs, to ensure you capture the true impact of losses to your company.