Accident costs ratios

Statisticians may say they would like a larger sample from which to draw conclusions. Nevertheless, the data are significant. An excerpt from the report follows. Its substance is pertinent to the improbability of arriving at a universally applicable indirect-to-direct accident cost ratio. 

Indirect-to-Direct Accident Cost Ratios Uniformly accepted computation methods to determine indirect and direct accident cost ratios are not available. Differences in the systems utilized are substantial. More importantly, no published ratios are valid because the increase in direct costs from about 1995 through 2011 (indemnity payments and medical costs) has substantially exceeded the increase in indirect costs. This chapter presents a review of selected data pertaining to indirect and direct accident costs, shows computations made to update ratios resulting from the only plausible research located to give an approximation of what the current ratio of indirect to direct costs might be, comments on the inappropriateness of using additional sales needed to cover indirect and direct costs, and pleads for research to provide substantiated cost ratios. 

Direct and indirect costs are addressed in that report. Its Table 3 is titled Analysis of Accident Costs. Excerpts follow. Note that the ratio of indirect to direct costs diminishes as the cost of the benefits paid increases. Also, keep in mind that money numbers are in 1982 dollars. 

Risk factors Quality accidents Cost claims Ratio... 

Safety goals — Set safety goals for managers and supervisors (e.g. accident rates, accident costs, and loss ratios). 

Fred A. Manuele, Accident Costs Rethinking Ratios of Indirect to Direct Costs, Professional Safety, 56(1) 39 7 (2011). 

For decades, safety practitioners have used the ratio of indirect-to-direct costs of accidents to inform managements on total accident costs and to achieve improvements in safety management systems. The most commonly used ratio is 4 to 1, but the literature contains a wide range of ratios and an even broader range of methods for determining the ratios. Uniformly accepted computation methods to determine indirect and direct costs have not evolved. Differences in the systems utilized are substantial. 

U.S. Department of Labor, OSHA (2007), in an undated bulletin titled Safety and Health Management Systems eTool—Costs of Accidents says Studies show that the ratio of indirect costs to direct costs varies widely, from a high of 20 1 to a low of 1 1. Geige Safety Group provides OSHA Academy Course 702— Accident Investigation Recommendations (April 2010). They say If the indirect (uninsured) accident cost totals 160,000 and the direct (insured) cost is 40,000, the ratio of indirect to direct costs will be 4 to 1. ... 

H. W. Heinrich is the author of Industrial Accident Prevention A Scientific Approach. His presentation on the indirect-to-direct cost ratio... 

Analysis of the compiled data showed that the indirect cost ratio is affected by many variables. However, the report said Still, if the accident data are separated into two general groups, large and small claims, it can be seen that smaller accidents have a larger [indirect-to-direct cost] multiplier. ... 

The total of hidden costs for all claims was divided by the total cost for benefits paid, resulting in a 1.6-to-l ratio of indirect-to-direct costs. But the report cautions that the 1.6 ratio may be low because certain indirect cost data was omitted, such as OSHA fines and hearings and third party liability and legal actions, and the effect of accident costs on future workers compensation premiums. ... 

Computations in this chapter updating the Stanford study indicate that the ratio of indirect-to-direct accident costs is currently about 0.8 to 1. That ratio is given as an approximation. Safety professionals who use a 1-to-l ratio can be reasonably comfortable. This author recommends against using ratios for which there is no supporting data (4 to 1, 6 to 1, or 10 to 1, or higher). 

On the other hand, accident countermeasures that offer positive incentives for accident avoidance have clearly demonstrated their effectiveness in reducing accidents, and that at high benefit/cost ratios. Examples of such safety-incentive programmes are presented with their results in Chapter 21. This chapter also notes some common objections to RHT and presents evidence refuting them. 

The cost-benefit analysis including behavioural adaptation therefore included three types of benefit (1) accident reduction, (2) travel time saving, and (3) new trips in darkness. In the cost-benefit analysis not including behavioural adaptation, accident reduction was the only benefit. Figure 20.1 shows the estimated benefit-cost ratio of providing road lighting as a function of traffic volume in the two analyses. 

In the planning of an incentive programme, thought should be given to the question of what actnally constitutes its primary goal the greatest possible cost-effective accident reduction or a maximal benefit/cost ratio. 

Studies have shown that the ratio of indirect cost to direct cost varies widely from 20 1 to 1 1. OSH A has shown that the smaller the cost of the accident the greater the direct to indirect cost ratio (see Table 9.7). Over many years I have always used a ballpark figure of around 5-10 for indirect cost to direct cost. There is little doubt that indirect cost can mount up quickly. 

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