Safety Programs Drive Down Workers' Comp Cost

By: James Morgan, Master Certified Workers' Comp Advisor (MWCA), Towne Insurance 

If you could save your company money, improve productivity and increase employee morale, would you? According to OSHA, workplaces that establish safety and health management systems can reduce their injury and illness costs by 20 to 40 percent. Safe environments also improve employee morale, which positively impacts productivity and service. When it comes to the costs associated with safety, consider the following statistics from OSHA:

• Employers pay almost $1 billion per week for direct workers’ compensation costs alone, which comes straight out of company profits.
• Injuries and illnesses increase workers’ compensation and retraining costs.
• Lost productivity from injuries and illnesses costs companies roughly $63 billion each year.

In today’s business environment, these safety-related costs can be the difference between reporting a profit or a loss. You can use the following tips to understand how safety programs will directly affect your company’s bottom line.

Measuring the Cost of Safety
If it is important for your organization to measure safety as it relates to profitability, more accurate tracking should be done. For measuring data, safety costs can be divided into two categories:

Direct (hard) costs, which include:

• Safety wages
• Operational costs
• Insurance premiums and/or attorney’s fees
• Accidents and incidents
• Fines and/or penalties

Indirect (soft) costs, which go beyond those recorded on paper, such as:

• Accident investigation
• Repairing damaged property
• Administrative expenses
• Worker stress in the aftermath of an accident resulting in lost productivity, low employee morale and increased absences
• Training and compensating replacement workers
• Poor reputation, which translates to difficulty attracting skilled workers and lost business share

When calculating indirect (soft) costs, minor accidents costs are about four times greater than direct costs. According to International Risk Management Institute, just the act of measuring costs will drive improvement. In theory, those providing the data become more aware of the costs and begin managing them. This supports the common business belief that what gets measured, gets managed, and as costs go down, what gets rewarded gets repeated.

How Can You Show ROI?
OSHA studies indicate that for every $1 invested in effective safety programs, you can save $4 to $6 as illnesses, injuries, and fatalities decline. With a good safety program in place, your costs will naturally decrease. Keep in mind that your total cost of safety is just one part of managing your total cost of risk. When safety is managed and monitored, it can also help drive down your total cost of risk.

Safety as a Core Business Strategy
Industry studies report that companies who focus on safety as a core business strategy come out ahead. Safety experts believe that there is a direct correlation between safety and a company’s profit.