How do we calculate the value of a human life?
We have all read about the costs of road accidents. Sometimes we read that fatal accidents “have cost the economy in excess of R50 billion” etc. But how do we calculate the value of a human life in numbers? How can we say that such a life is costing the economy this or that amount?
The value of a human life is not only important for the purposes of insurance and succession –but also for the economy and government of the country. I believe it is important to share some of the insights from research mandated by the South African Government.
Department of Transport Report
In 2002 the South African Department of Transport identified the need to broaden the current methodology to include unit costs for accident victims according to age groups and severity of casualties, and unit costs for the number of vehicles involved according to vehicle type and type of accident, with a possible further breakdown in terms of urban and rural areas. The tender for the undertaking of a project on the cost of road traffic accidents was awarded to CSIR Transportek, which conducted the study during 2003.
In 2004 the Department of Transport released a very informative report after a rather comprehensive study was undertaken. This was titled “The estimation of unit costs of road traffic accidents in South Africa”.
Cost of losing a life
One way of calculating the value of human life would be to identify the cost of losing a life in a road accident. I would like to refer to the factors used to calculate what the costs are of using a life in a road accident.
Accident unit cost figures used up to now are based on the “Human Capital” approach or the “Gross Output” method, which take into account the following cost aspects:
• Direct costs
o Hospital, medical and funeral costs
o Vehicle damage costs
o Damage to goods carried
o Damage to fixed property
o Legal Costs
o Insurance administrative costs
o Towing costs
o Policing and promotion costs
• Loss of output
• Qualitative costs
o Pain, suffering, and loss of amenities of life
Data used in calculating the value of a human life
It is interesting to note which data is required to calculate the value of a human life. It is only logical that there are significant differences in the value between a younger person and an older one, or whether such a person was employed or not….
To enable different calculations, it was necessary to gather the following data:
• Different labour force participation rates (employment, participation, economically active)
• Income of employed persons by age group and gender
• Income of informal sector by age group and gender
• Life expectancy per age group
• GDP per capita
• Days lost due to non-permanent disability
• The effect of partial disability on employment
• The severity of the injury
• The degree of disability
• The likelihood of a man / woman in a particular age group living to a certain age
Human casualty costs based on productivity
How much is the value of a human life lost? The Report made some interesting findings on the cost of a human life based on productivity in South Africa:
The human casualty costs calculated using productivity values amounted to R 624 405 for a fatality, R 236 121 for a serious injury and R 113 859 for a slight injury in an urban area. The figures for rural areas differ slightly – R 629 777 for a fatality, R 239 296 for a serious injury and R 114 741 for a slight injury. The lost output component contributed to 70,9 per cent of the human casualty cost of a fatality, 9,4 per cent of a serious injury and 0,1 per cent of a slight injury.
Conclusion and Advice
The Accident Costs Report reveals the significant impact that road crashes have on the South African economy. From 1 December 2010 to 5 January 2011 more than 1551 people passed away in road crashes across South Africa – with many other injured and disabled.
The insurance industry has revealed that South Africans are significantly “under insured” – and these losses will impact not only on the economy –but also on thousands of family members and dependents left behind!
We would like to remind all South Africans to ensure that they perform a financial needs analysis regularly in an effort to protect their loved ones from the additional financial harm caused by road accidents!
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