Direct versus Indirect Costs

The payments made by the insurance carrier for worker injuries are known as Direct Costs. Direct costs include such things as actual medical expenses and loss of wages for the injured employee. It can also include rehabilitation and ongoing disability costs. There are however, other costs associated with work-related injuries. These are called Indirect Costs. They include such things as:

  1.  Costs to hire and train a replacement worker who is injured
  2. Repair damaged property arising from the accident
  3. Investigate the accident and implement corrective actions, attend hearings, etc.
  4. Maintain insurance coverage for absent injured employees (employee benefits)
  5. Schedule delays due to an injured employee or shutdown of operations
  6. Shutdown and startup costs related to the accident

 None of the indirect costs are paid for by the workers compensation insurance. They come directly out of the company’s coffers. Indirect costs do not show up on the carrier loss runs. Most experts say that the relationship between indirect costs and direct costs is about 3 times. That means $3 is paid out by the insured company for every $1 paid by the workers’ compensation insurance carrier for the claim. $1,000 paid by the worker’s compensation insurance carrier would cost the company an additional $3,000. This means that if a company were to incur $20,000 in workers’ compensation insurance claims during the year, it would cost the company an additional $60,000 out of pocket. That’s a lot of extra money – not covered by insurance.

One company had the following losses per the insurance carrier loss runs for three years:

  • 01/01/2009 – 01/01/2010 = 4 claims for total incurred losses of $88,026.
  • 01/01/2010 – 01/01/2011 = 5 claims for total incurred losses of $70,614.
  • 01/01/2011 – 01/01/2012 = 6 claims for total incurred losses of $62,335.

The total direct costs per this sample are $220,975. Three times that amount equals $662,925. When eliminating losses in the workplace, these indirect costs are removed in addition to reducing the annual workers’ compensation insurance premiums. Often the indirect costs associated with losses is greater than the premium savings.

How to save these costs to your company is what Intelligent Solutions, Inc. is all about. We are experts on how to make your company a LOSS FREE company