How to Properly Allocate the Health and Safety Insurance Cost Within the Firm

Abstract

One aspect of economic justification of ergonomics projects that may require a specific analysis is the allocation of health and safety costs (H&S) within the firm. This paper shows that the proper allocation basis for a certain kind of occupational H&S insurance cost within the firm is done with the use of injury costs. Such an allocation is performed within the framework of an insurance mechanism, which is said to be H&S performance sensitive. The allocation procedure is accomplished through the use of cost functions that use injury costs as drivers. It is also shown that the use of other drivers such as the number of accidents, or the number of days of absenteeism, can lead to large cost allocation errors when used as an allocation basis.