Is now a good time to invest in greater occupational illness and injury prevention?

The global economic crisis brought terms like Gross Domestic Product (GDP) from the financial section of your weekend paper to the lead headlines on the evening news.    Even the non-economists among us are more in touch with the standard definition of a recession (a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP) because of what it means in real, everyday terms to our communities and our families.

    

In the current environment where economic growth is being measured in parts of single percentage points of GDP, many are searching for ways to stimulate growth.   Some argue for cutting red tape and reducing “impediments” to business.  A few even suggest cutting safety and health rules, inspections or enforcement.  It begs the question, is now the time to reduce our focus on OH&S?

A few years ago, the Australian National Occupational Health and Safety Commission (NOHSC) estimated the total direct and indirect cost of workplace injury and illness to the Australian economy at 2000–01 reference year to be $34.3 billion.  That is the equivalent of 5 per cent of Australian GDP.  I was taken aback by the size of this estimate. It made me wonder what the estimate might be for other jurisdictions. 

Last month, László ANDOR, European Commissioner responsible for Employment, Social Affairs and Inclusion, spoke at the Institute of Occupational Safety and Health 2013 conference in London.  His talk separated the myths from the facts about OH&S.  He noted a recent study by the European Agency for Safety and Health and Work that puts the occupational injury and disease loss to the European economy at between 2.6 and 3.8% of GDP.

The International Labour Organization (ILO) in its 2003 Safety Culture at Work study pegged the cost of work-related injury and illness at 4% of the global GDP.  Estimates put the figure at about 3% for the largest economy on earth, the United States. 

These estimates converge on about 3% of GDP average.  Economic growth at that level would be considered healthy in most developed economies.  Recent estimates of current annual growth rates for Canada, Australia and the US are all under that level.  If we could eliminate the direct and indirect costs of workplace injury and illness, the benefits are obvious. 

If more evidence is needed, another study (the Socio-economic costs of accidents at work and work-related ill health [European Commission 2011]) study found, the median value of the profitability index for investments in occupational safety and health (the ratio of pay-off to investment in a particular project ) ranges from 1.29 to 2.89.  Fabulous results for any investment!

Working toward greater health and safety particularly in the low growth, post recessionary period, is not just good for workers, it is good for the economy.  

Who does workers’ compensation really protect?

This question gets asked a lot at public meetings, hearings and classes I attend or facilitate.  I can summarize one perspective with the following: 

 “Workers’ compensation is more about protecting employers than workers… It should be called the ‘Employer Protection Act’… It protects employers from being sued.  It protects them from the real costs of injuries.  It protects employers from having to look the families of the workers they have injured or killed in their eyes and be accountable for what happened.” 

This rather harsh assessment is not without its justifications.  The exclusive remedy workers’ compensation provides does protect employers from being sued by their workers for work-related injuries and diseases; however, it also protects workers from being sued by other workers.  There are some exceptions in some jurisdictions but this protection is an essential element of almost every workers’ compensation system.  More importantly, the no-fault, mostly universal coverage offered by workers’ compensation systems provide timely financial compensation and medical coverage in a way that fault-based systems reliant on the Courts simply cannot.  

Yes, the insurance does protect employers from the real costs of injuries but only to the extent that the cost of injuries exceed the cost of the insurance.  That’s the nature and purpose of insurance:  to protect against rare and costly adverse events.  It is also true that most of employers insured under a workers’ compensation policy in any given year will actually pay more for the insurance than the costs of their actual losses.  Some people are surprised by this statement, but only until they think about other lines of insurance.  The cost of my house insurance protects me from the real cost of a house fire but only if I have one.  Thankfully, my house is still standing and the cost of my house insurance far exceeds the losses I have had or will likely every have in a given year. 

Just because workers’ compensation in a no-fault system and protects an employer from suit does not mean the employer is not held accountable.  Firms with poor claim cost records relative to their industry counterparts will likely face financial consequences through experience rating (also called experience modification, demerits, and surcharges in other jurisdictions).  Put another way, firms who invest in safety and develop a strong safety culture are likely to have fewer injuries with less severity giving them a competitive advantage.    In addition to financial accountability through higher premiums that may hurt competitiveness of poor performing firms, more severe penalties add another layer of accountability in many jurisdictions. 

WorkSafeBC recently issued its annual listing of “administrative penalties” against employers for violations of the Occupational Health and Safety Regulation that put workers at risk whether or not such violations actually resulted in real injury.  This form of accountability goes beyond the financial accountability equal to the dollar value of the penalty, it can also holds the employer accountable in the court of public opinion.  One has only to look at the media coverage related to penalties assessed by WorkSafeBC. 

Who does workers’ compensation really protect? The obvious answer is the worker.  As an insurance nominally paid for by the employer where the beneficiary of compensation is the injured worker, workers’ compensation protects workers and their families from the full financial loss that might otherwise occur as a result of work-related injury.  That protection amounts to billions of dollars every year paid out to injured workers and their families in Canada, the US, Australia and other countries with workers’ compensation systems. 

Often overlooked are the protections extended by workers’ compensation legislation to non-workers.  Spouses and dependents are often beneficiaries of workers’ compensation in the event of a work-related fatality.  Beyond that, the healthcare paid on behalf of the injured worker protect society (taxpayers like you and me) from medical and other healthcare costs that might otherwise be externalized to government programs.

Workers’ compensation systems also impose a duty on the insured employer to prevent injuries.  That duty, when embraced fully, becomes cultural but the duty to protect workers extends protection to every other person in the workplace. 

The prevention imperative of workers’ compensation to directly protect workers also protects kids in schools, customers in malls, and non-worker participants at or near the worksite.  In a sense, workers’ compensation protects all of us in one way or another making it an important element of social policy.