Financial Leakage: What Is It?

What is it?

Financial leakage refers to the hidden, indirect costs that result from insurance claims.   When an accident or incident occurs, the immediate costs—such as repairs, medical expenses, and legal fees—are typically covered by the insurance policy. However, financial leakage encompasses the broader impact on a company's finances, including operational disruptions, reduced productivity, increased insurance premiums, and loss of market competitiveness. These indirect costs often consume significant time and resources, leading to an overall drain on the company’s financial health that is not immediately apparent.

What is an example of financial leakage?

One of the autos in your company's fleet is damaged in an accident.  Direct costs include vehicle repairs and medical bills for your employee and the other party. Beyond these costs, financial leakage includes the downtime of the vehicle, reallocation of resources, lost productivity, and the potential increase in future insurance premiums due to claims history. Additionally, there may be a negative impact on employee morale and efficiency if workers are distracted or demotivated by the incident. Over time, these indirect costs add up significantly, affecting the company's bottom line and highlighting the importance of comprehensive risk management strategies to mitigate such leakages.

How do you address financial leakage?

Our team of risk consultants are trained in quantifying financial leakage. Armed with data to understand the total cost of claims, we assist you in developing programs to reduce exposure and educate your employees on safety and compliance. Together, we build a plan to reduce your claims and increase your bottom line.