The direct costs of accidents



The direct costs of accidents are only the tip of the iceberg for various reasons. Accidents sometimes have indirect costs that are not insured. Insurance claims a big part of the time, insure direct costs of accidents. If an employee injures himself in an industry, physically, the direct costs will be covered by the company. This can include medication, therapy, insurance, equipment such as clutches if needed are covered under insurance policy that companies are required to provide by law. The indirect costs in this case scenario can include depression, immeasurable loss of time the employee would have used to better his trade or department, damage to the equipment or vehicle that put the employee in the current predicament, the time it takes the supervisor to complete a report to the insurance company, the gap left behind by the injured employee in a group that depends on each other to complete a task and the need to fill that void left when you need to complete the work of an extra individual that was not planned for. All this indirect costs are very expensive in monetary terms as well as time wasted. Time is money after all is said and done.

Studies have shown that such indirect costs usually total three to four times the direct costs of the accident and could amount to as much as 20 times the direct costs. Not many businesses could withstand such a hit to their bottom line, including FNF. (FNF, 2017)The direct costs of accidents

Insurance only covers a portion of the costs in any accident. The total cost of an accident at times is too big and even the insurance companies are out to protect their interests. The affected company’s premium increases with the cost of an accident. Take an example company A’s worker gets into an accident, the company needs to compensate him or her, as the costs add up  so does the premium of affected company which leads to losses for the company.

This is the reason why this direct costs and indirect costs are given the example of an iceberg. The tip of an iceberg represents the direct costs covered by the insurance; it is small and can be navigated. The unseen part of the iceberg is monstrous and can sink a ship. It represents the indirect costs that are neglected by insurance claims and could eat into a company’s profits so badly leading to closure. This unseen costs include; worker distraction, overhead costs caused by the disruption in operations, time lost for replacing damaged equipment, lost supervision time, economic losses to the injured members’ family and the cost of treating them as well in cases of depression . Insurance therefore though important, does not cover all the trouble.

2.The direct costs of accidents

The monetary figure for the worker’s compensation for the injuries obtained is done in a variety of ways. In the United States, according to the Bureau of Labor Statistics’ 2010 National Compensation Survey, workers’ compensation costs represented 1.6% of employer spending overall, although rates varied significantly across industry sectors. For instance, workers’ compensation accounted for 4.4% of employer spending in the construction industry, 1.8% in manufacturing and 1.3% in services (CPWR, 2017). The workers compensation is computed differently according to different factors.

Different states offer different laws on on how much an employee is to be paid, what injuries should be covered by insurance, how they are to be evaluated and how medication is to be administered. States dictate whether workers compensation insurance is provided by state-run agencies and by private insurance companies or by the state alone. States also establish how claims are to be handled, how disputes are resolved and they may devise strategies, such as limits on chiropractic care, to control costs. (INSURANCE INFORMATION INSTITUTE, 2017)

Workers comp helps companies in covering its employees. It covers injuries sustained in the course of work, for example a traffic accident while an employee was running company errands. It covers certain illnesses associated with a particular occupation should it occur because its effects will be directly linked to the disease and the company required to pay up. It also covers injuries from other events that may not have occurred in the work space but occurred outside the company but the employee was still on duty at the time.

Premiums are set based on industry classification code and the employee payroll. Premiums increase with the negative effects imposed to the environment by the particular industry. For example, an oil harvesting industry will have a higher premium than say a fishing company. Location has also become a prime thing to look out for. If your company is located in an area with high risk for natural or artificial catastrophes like terror attacks, one is needed to pay a higher premium. Businesses with lower claims will pay fewer premiums while those with higher claims will pay higher premiums.The direct costs of accidents

Usually a workers comp policy has two parts: “Part One, Workers Compensation” and “Part Two, Employers’ Liability.” Under “Part One”, the insurer contracts to pay whatever the state-required amounts of compensation may be. Unlike other types of insurance, workers comp coverage has no ceiling or limit on the policy amount. The insurance company accepts a transfer of the employer’s entire statutory obligation—whatever the employer is legally obligated to pay as a result of the injury.” Part Two” of the policy provides coverage for an employer who is sued by an employee for work-related bodily injury or illness that isn’t subject to state statutory benefits. It has a monetary limit. (INSURANCE INFORMATION INSTITUTE, 2017)


  1. 2 Counts of Concussion


Estimated Direct Costs:

Estimated Indirect Costs:

Combined Total (Direct and Indirect Costs):

Sales To Cover Indirect Costs:

Sales To Cover Total Costs:


In one account of a concussion, the total cost to cover is almost half what 2 accounts of concussions cost. The frequency in occurrence of the accident increases the cost substantially.

3b. 1 count of amputation


  1. Estimated Direct Costs:
  1. Estimated Indirect Costs:
  1. Combined Total (Direct and Indirect Costs):
  1. Sales To Cover Indirect Costs:
  1. Sales To Cover Total Costs:


The amount is significantly high because of the repercussions involved; the injured party may need to quit the job because of dismembering in his body. The costs will be determined by medical expenses occurred, stigma and effects to the family income.

3c. 1 count of electric shock

  1. Estimated Direct Costs:
  1. Estimated Indirect Costs:
  1. Combined Total (Direct and Indirect Costs):
  1. Sales To Cover Indirect Costs:
  1. Sales To Cover Total Costs


The amounts may also be high because it may involve equipment breakdown, electrocution of the handlers and the time wasted when the particular machine is not operational as well as the time taken to recover completely operations.

TOTALSThe direct costs of accidents

Injury Type Instances Direct Cost Indirect Cost Total Cost Additional Sale (Indirect) Additional Sale (Total)
Electric Shock 1 $ 93,858 $ 103,243 $ 197,101 $ 2,064,876 $ 3,942,019


Amputation 1 $ 77,995 $ 85,794 $ 163,789 $ 1,715,890 $ 3,275,780
Concussion 2 $ 118,744 $ 130,618 $ 249,362 $ 2,612,368 $ 4,987,240



  1. Estimated Direct Costs:
  1. Estimated Indirect Costs:
  1. Combined Total (Direct and Indirect Costs):
  1. Sales To Cover Indirect Costs:
  1. Sales To Cover Total Costs:


NB:  All the figures are in dollars.The direct costs of accidents

When all these factors are combined in a year, the total cost shoots up costing a particular company its profits. If the profits are not as good, the company risks closure. This is a classic example of why a company’s premium may be increased on the basis of frequency of accidents.



Process step Potential Failure mode Potential Failure Effect Severity Potential Causes OCC Current process controls DET RPN Action Recommended
What is the step? In what ways can the step go wrong? Impact on participant if anything goes wrong How severe is the impact What causes the step to go wrong Frequency of the cause Existing controls that detect the problem How probable is the detection Calculated as OCC*SEV*DET Provide actions on all high RPNs
Climbing to the roof Falling from the roof Injuries like broken leg 5 slipping 3 Safety ropes 3 45  
  Cuts Deep Cuts 6 Unprotected body parts 2 Insulating open metals 2 24  
Handling power lines Electrocution Electrocution 8 Electric waves entering the body 5 none 8 320 Increase shielding on power lines
  Burn the building Fire devastation 10 Fire produced by unshielded power lines 2 Fire alarms 6 120  


We conduct Failure Mode effects analysis for the following reasons

  • To redesign a process, product or service. The analysis ensures it detects the current failures of the product or service and why it is not meeting market standards or needs by looking at the areas that need improvement
  • To apply in a new way an existing product or service. Take an example of a company that offer or makes face creams. Putting the customers recommendations or complaints together, the company may come together and decide to improve their current quality to meet the specific needs of the various skin types.
  • To develop control plans for the brand new developed process or the slightly improved process. The control plans are aimed at regulating the system and protecting it from any factors that may be attributed to it.
  • To ensure that goals are met. It helps in the monitoring of whether or not the goals of a particular product have been met by the product, system or service. By effectively analyzing the goals met, the goals have a way of success rate being determined.
  • It is a clear system of spotting existing failures and determining future ones that may occur. Through a failure analysis room for improvement is determined and failures arrested at the grass root levels.
  • The service or product can be analyzed through its entire life to ensure that excellence is achieved.