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Insurance against the risk of work-related incidents is vital to the smooth running of the economy. Workers must be assured that they will be adequately protected against accidents and injuries arising out of the course of their employment. Otherwise they will withdraw from the labour market, or demand higher wages to cover their perception of the risk. Given that we live in a world where employees and employers fo not have perfect information about the level of risk to which they are subjecting themselves in the workplace, perceptions are likely to be incorrect, leading to inefficiencies in the labour market.

From an employer's perceptive, it is unlikely that all but the largest multinationals companies could afford to set aside sufficient reserves to fund large compensation awards. Even for these firms, it is likely that better use can be made of this money, for example, investing instead in capital projects which will expand the business for the future.