2. When you are thinking about ways to manage
risk, you generally believe that
the insurance premiums you
pay represent the sum total
of your insurance costs. You
may need to think again.
3. For example, if an employee rear-ends a vehicle in
traffic, seriously injuring the
other driver, once your
insurance carrier pays the
damages you may believe
the matter is closed. It’s true
that damages paid by your
carrier are direct loss costs,
but after quantifying the costs
of insurance and direct loss costs
to your organization, including deductibles or
retentions, you can see there are also indirect loss
costs.
4. If you think of a claim or injury
as an iceberg, you will find
that the majority of the
incident’s costs lie under
the water’s surface. Experts
estimate that the indirect
costs of accidents and
injuries are actually seven
times the direct loss costs.
5. Direct Costs
Direct loss costs are quantifiable
and include insurance premiums;
the amount paid to repair
damaged equipment or medical
costs of injuries; lost wages; fines
imposed by regulators; costs to
defend the claim; and deductible costs.
6. Indirect Costs
Indirect costs are more difficult
to calculate. In fact, they may
go unnoticed by your
organization until you wonder
what’s happening to your
profits. Indirect costs that may
or may not apply include staff administrative time
and cost to administer the claim and resulting
damages; lost productivity and profits; the cost to
hire temporary workers to meet production goals;
potential failure to meet pre-injury production
benchmarks and replacement or downtime of
damaged equipment or tools as well as time lost by
other employees impacted by the incident.
7. Morale suffers
Costs also might include
lowered morale that inevitably
occurs post-injury, especially
when that worker remains off
work; staff time spent investigating
and defending the claim in depositions, mediations
or trial; damage to your organization’s reputation
after high-profile adverse events; and business
costs to relocate even though you’ve purchased
business interruption coverage.
8. Here are several steps to help you understand
these costs and reduce them.
9. • Evaluate your last few claims.
Calculate direct loss costs
by considering deductibles
and payments made by
your insurance carrier.
• Sit briefly with a few members
of your team and ask them to
describe the challenges they
faced after the loss. It may
have been disrupted production,
added temporary workers,
lowered morale and lost administrative time in
handling the incident, which are indirect costs.
10. • Considering this practical
information, determine a
plan to prevent future
occurrences and reduce
indirect loss costs should
another event occur.
• Call your insurance
professionals to help
you develop a plan
to reduce losses.
11. • Keep evaluating your plan
to determine its effectiveness
and change it as needed.
• Even better … preventing
loss-causing incidents from
happening can save costs,
human as well as the direct
and indirect losses that
can hurt your bottom line.
