Impact of a Slower Economy on Loss Control Programs

Topics: Loss Control

Summary: During economic slowdowns, workplace safety programs are usually the first to be cut back potentially impacting a company’s workers’ compensation claims. Learn strategies to maintain loss control programs during uncertain economic times.

Economic Downturn Impacts on Loss Control Programs

This article was originally published on Work Comp Central.

Written by Jeff Corder, Vice President, Loss Control at AmTrust Financial

An economic recession is a widespread and prolonged downturn in economic activity. Economists use many factors to define when a country’s economy is in a recession, including two consecutive quarters of a negative GDP, industrial production and nonfarm payrolls. Even with more robust than predicted economic indicators in the U.S. at the end of 2022, the large amount of layoffs in the tech sector has increased fears of an economic slowdown.

During a recession, companies could implement budget cuts that reduce their emphasis on workplace safety programs, potentially leading to increased worksite injuries. Workplace incidents and illnesses reduce productivity and employee morale, resulting in increased absences that could ultimately lead to lower profits. Employers that enforce safety procedures and regulations and provide safety training, education, and occupational health programs create a workplace environment in which employees feel safe and promote an environment of employee loyalty.

How a Recession Could Impact Workplace Safety Programs

In economic downturns, businesses face many difficult decisions to save money, such as by lowering operational expenses. Unfortunately, companies usually cut workplace safety budgets or reduce investment in new safety technology or equipment. In addition, employee layoffs could lead to a decreased emphasis on safety procedures or training.

During the Great Recession, many large corporations faced financial challenges and cut their workplace safety programs that led to tragic events. For example, BP Oil announced in 2009 that it was cutting spending on workplace safety measures across the globe by 25%. The decision came under NIOSH review after the Deepwater Horizon oil spill in 2010, which resulted in 11 deaths.

Some of the long-term consequences of neglecting workplace safety during a recession include the following:
  • Increased number of workplace accidents and injuries
  • Damage to a company’s reputation
  • Higher legal costs
  • Lower employee morale and motivation
  • Decreased productivity

How Does an Economic Downturn Impact Workers’ Compensation?

The reduction in payroll and staff during a recession impacts workers’ compensation premiums. Still, on the other hand, there is also an increase in the number and the cost of workplace injury claims. Staff members with less tenure on the job had 50% higher injury rates, while those with more experience do not report workplace incidents as often. Also, according to a report published in the National Library of Medicine, recessions influence the reporting of moderate workplace accidents. If workers think the probability of dismissals at a business is high, they are less likely to report a moderate workplace accident.

Strategies for Maintaining a Strong Workplace Safety Program During a Recession

To help prevent these scenarios, what can business owners do to keep the focus on safety control measures during an economic downturn, when there usually is more pressure to consolidate, cut programs and save money?

There are many options for executives and management teams to implement to maintain a strong workplace safety program, including:
  • Emphasize the importance of workplace safety and incident prevention to all employees
  • Perform continuous workplace safety training programs for all employees
  • Reallocate the budget from other areas to prioritize workplace safety
  • Conduct regular safety assessments and audits to identify areas that need improvement
  • Implement cost-effective safety measures and technologies
  • Create return-to-work programs for injured employees to get back to work safely and efficiently

Continual Investment in Workplace Safety Programs

Protecting workers should be the primary goal of any safety management program, but it also benefits the bottom line. There were approximately 2.6 million nonfatal workplace injuries or illnesses reported by private injury employers in 2021. The average cost per worker death was $1.15 million, while the average cost per medically consulted injury was $39,000.

During economic downturns, uncertainty and exposure to safety risks rise. There must be a commitment by company leaders to be transparent with their staff to continue to promote workplace safety. Highlighting safety and risk control successes as part of the everyday routine will keep these policies front of mind and help prevent costly incidents.

A recession can significantly impact a business’s workplace safety program. Layoffs, reduced budgets, and a decreased emphasis on workplace safety can lead to an increase in employee incidents and injuries. However, there are ways a business can keep the focus on these programs during rough economic times and still maintain desired cost-savings.

Company leaders who accentuate workplace safety programs show their commitment to their employees and, ultimately, to their customers and community. Employee engagement through safety programs builds strong teams and increases productivity.

Investment in workplace safety programs brings savings in employee injuries, worker’s compensation costs, and other medical costs, but it also gives a business considerable financial savings in the long run. As executives look for cost reductions during an economic slowdown, it is critical to understand the difference between cuts that could cause unnecessary risk and those that will support a higher return on investment.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.

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