Safety Management: The true cost of an accident

Fleets are at risk of identifying merely the tip of the iceberg when they calculate the cost of a road traffic accident to their businesses. But, as the captain of the Titanic discovered, the real dangers lie hidden.

The concept of total cost of ownership (TCO) is well established as best practice when fleet managers select vehicles, but few apply the same rigour to accident costs. Awareness of the full financial, operational and reputational impact of an accident would persuade far more companies to take safety seriously, says fleet risk management specialist, DriveTech International.

The direct costs of an at fault accident are well known. Firstly, there’s the bill for repairing the vehicle. For insured fleets, this still involves paying an excess; while self-insured fleets have to foot the entire cost themselves. Secondly, there are the medical expenses arising from treating and rehabilitating an injured employee. Finally, there are the costs arising from the third party’s claims, which may extend well beyond vehicle repair charges into increasingly expensive personal injury claims. And remember, every increase in a fleet’s claims history is matched by a rise in its next insurance premium.

But these above-the-line costs barely scratch the surface of the true financial impact of an accident, says DriveTech.

It urges fleet executives to consider the indirect, or hidden, costs of an accident, which can inflate the cost of a claim exponentially. These include:

• The administrative burden – the aftermath of an accident involves insurance forms, repair estimates, replacement car quotes and even crash investigation. Putting a value on the time this takes managers, drivers and administrative staff is vital to understanding the true cost of a collision.
• Lost employee time – any member of staff unable to work because of a crash represents a direct cost. While working days are lost, the injured employee must still be paid.
• Lost business – skilled staff are in short supply, and if an engineer, technician or sales executive is unable to visit clients, then a company will not only be unable to fulfil existing contracts business but also jeopardise future business.
• Recruitment costs – long-term injuries to key employees force businesses to recruit replacements. The new colleague has to be identified, interviewed and trained, which takes time and money, and it can be months before the new recruit is productive.
• Reputational damage – the brand image of a company is priceless, and any negative news stories and photographs that arise from an at-fault accident can ruin a carefully built corporate reputation.
• Legal costs – failure to comply with corporate legal responsibilities can lead to prosecution in some countries. Defending such cases incurs significant legal fees. Losing such cases can be financially devastating.

Finally, calculating the amount of revenue a company needs to make in order to generate a profit large enough to cover the total cost of an accident is a sobering experience. As the example in the panel conservatively illustrates, a business may need to generate €72,000 to pay for a €3,600 crash. The company therefore needs to ask itself: “Is it easier to sell €72,000 of products or services, or be more proactive in preventing this collision,” states DriveTech International.

True accident costs

The independent European Transport Safety Council presented the following example in its Work-Related Road Safety Programme:

The ETSC example is conservative when it multiplies the reported cost of the accident by only two to calculate the total cost, but it makes a powerful point: to cover a €3,600 collision cost, the company needs to generate €72,000 of revenue.