Cost of Accident & Injuries to the Construction Industry

1. Cost of Accident & Injuries to the Construction Industry Written by: John Everett & Peter Frank

2. Outline • Introduction • Objective • Description of methods & Results • Conclusion • Q & A

3. Introduction • Injuries & Fatalities on construction sites are a major problem • Construction injuries are expensive • The sharp rise in the cost of WCI 1985-1993/ premiums increased 10.5 % • Insurance premium are not the only cost result from workplace injuries and fatalities- indirect cost • These cost place a large economic burden on contractor – owner & user of constructed facility. • Realizing the magnitude of this problem in the construction industry

4. Introduction • BR aim is to promote quality, efficiency, & cost effectiveness • Commissioned a study -1981- to examine the cost of injuries in the construction industry . The purpose of this study was to draw attention to the true cost of accident in the industry in the hope that contractor would undertake greater measure to curb these cost • Result – total cost of injuries & fatalities in the construction industry account for 6.5% of the total cost of industrial, utility & commercial construction ( 6.5% of 137 billion dollar= 8.9 billion)

5. Objective • Since that time (1981) much had changed/ medical cost & wide spread abuse of benefits- cause the cost of WCI to skyrocket. • To determine the total cost of accident and injuries to the construction industry . This paper had gone through a detailed description of how the original figure 6.5% of the total cost was calculated - & then the original input would be updated to show that total cost had risen to somewhere between 7.9 % & 15 % of total cost of new construction. • It shows also that in addition to a moral, humanitarian commitment , owner have economic incentive to reduce the # of Accid.

6. Description of Methods & Results • the study was conducted by a team of 9 individual experienced in safety & health issues representing Industrial owners, construction contractor & the insurance industry • Also to undertake some of the research for the study a team was selected from standford university’s department of civil engineering & the CEM center at stanford provided the expertise and Personnel for the research – stanford group was responsible for developing the study method & assembling and analyzing the data. • BR study team identified 3 types of cost relevant to owners in term of evaluating the cost of jobsite accident ; Direct cost, indirect cost and cost of safety program

7. Description of Methods & Results • Stanford was responsible for gathering & analyzing 3 types of data; 1. gathered data on the direct cost of injuries from WCI premiums & other information. 2. survey was done for contractor & rating agencies to get data about experience rating methods (EMR) 3. indirect cost was founded through questionnaire

8. Description of Methods & Results • Would describe the methods used to gather the data and how 6.5 % had been calculated. • Direct Cost of Accident & Insurance: Defined as the actual contractor cash flow that can be directly attributable to injuries & fatalities . WCI: Standard Premium = manual rate * payroll unit * EMR Manual rates represents the average cost of accident + administrative cost & profit for the insurer per 100 dollars of straight time payroll for each work classification ( stanford 2-105% direct labor dollar)

9. Description of Methods & Results • Payroll units are found by dividing an employer’s direct labor cost by 100 dollar. • EMR is based on contractor’s own accident history this factor can range from approx. 30% - 200 % depending on the frequency & severity of injuries the median contractor would pay = 100 million * 30 % * 7.03 % * 88% = 1,855,920 dollar %of total direct labor cost - WCI premium = 1,855,920/ (100 million * 25 %) = 7.4 %

10. Description of Methods & Results • Public Liability Insurance – stanford study shows that most contractor pay approx. 1 % of direct labor dollar on liability insurance • In Direct Costs of Accidents: Includes (loss of productivity, disruption of schedule, admnistrative time for investigation & report, training of replacement personnel, wages paid to the injured worker, and others for time not worked, clean up & repair, adverse puplicity, equipment damage & third party liability claims) • Indirect cost calculated by multiplying the direct cost s by an indirect cost multiplier, ( 4% , 1.6 % total of all indirect cost of injury/ total benefits paid for injuries

11. Description of Methods & Results • Cost of Safety Program includes salaries for safety, medical, & clinical perssonel, safety meeting, inspection of tools, orientation session, site inspection ,PPE, health program (2.5 %) • Calculation of total cost of accident (BR) insurance cost to construction industry = 137 billion * 25%*(1%+ 7%) = 2.74 billion dollar (1979) total dollar spent on construction % of construction – direct labor liability insurance cost of WCI

12. Description of Methods & Results • Accident cost to construction industry = 65 % * 2..74 billion= 1.78 billion dollar (65% actual claim benefits– 35% IC overhead) • Conservative figure of 4 • Cost of accident = (1+4) * 1.78 billion dollar = 8.9 billion dollar • % of cost due to accident = 8.9 billion dollar / 137 billion dollar = 6.5%

13. Description of Methods & Results • Recalculation of cost of accident : • Direct cost: cost to construction industry = 268.6 billion dollar*25%*28.66%*96.3%=18.53 billion dollar Direct cost = 65% * 18.53 billion dollar = 12.05 billion dollar • Indirect cost = indirect (WCI) + Indirect (other)+ Indirect (claims) =(35% * 18.53 billion)+[(0.85*54.87 %) + (0.23*45.13%)]*12.05 billion +[ (268.8 billion *1.55%)+0.57 *4.16 billion] = 19.89 billion dollar Total cost of accident = 12.05 b + 19.89 b = 31.94 b dollar % of construction cost due to accident = 31.94 b/268.6 b = 11.9 %

15. Conclusion: • Showed the cost of accident & Injuries – risen from 6.5 % (1980) to between 7.9 % and 15% (1996) • However, there are other costs of accident to a contractor that have not been included ( OSHA cost, decrease employee morale, less of future work,) • WCI cover the DC of today’s injury, these injuries will cause a contractor’s EMR to rise in future years and increase future WCI premiums • Recommends: hiring of safe contractors

16. Questions