5.2  Costs borne by the private sector

For costs borne by the private sector (individuals, households, businesses and institutions) UK Home Office estimates have been used, except where relevant New Zealand estimates are available.

As previously noted, local authorities are included in this group. There may be some crime-related costs incurred by local authorities reflecting their role that other organisations do not bear, e.g. costs relating to crime prevention. These have not been separately identified or included.

The costs incurred by private, not-for-profit groups that deal with the consequences of crime (e.g. Rape Crisis and Women’s Refuge) have not been separately identified.

5.2.1  Preventative expenditure

This category comprises all those costs that individuals, households, businesses and institutions incur to prevent crime, e.g. security alarms, fencing and deadlocks. It also includes insurance administration (see Section 5.2.2 below).

We have used UK estimates (Dubourg, Hamed and Thorns, 2005) for this preventative expenditure, converted to New Zealand prices, in the absence of recent New Zealand estimates.

5.2.2  Property lost

This category comprises property lost and damaged as a result of criminal acts, less any property recovered. Again the converted UK estimates for 2003/04 produced by Dubourg, Hamed and Thorns (2005) have been used, in the absence of New Zealand estimates.

Property insurance is effectively a risk-pooling activity in which individuals and businesses transfer to insurers, through their premium payments, the cost of having to replace property lost as a result of crime. Insurance has the effect of spreading the cost of property crime over all insured people. This is a transfer of risk rather than a reduction in the amount lost to society from property crime.

As property insurers (businesses) fall into the ‘private sector’ category, we have neither added on the cost of insurance premiums nor subtracted insurance ‘recoveries’ from the cost of property lost. Rather, we have assumed that, collectively, the private sector ends up bearing the overall cost of insured, as well as uninsured, property loss.

A portion of insurance premium payments represents insurers’ administration costs and profits, namely the residual left over after claims for property loss have been paid out. We have included this portion under preventative expenditure costs.

5.2.3  Intangibles

Intangible costs reflect the impact on victims’ quality of life through the physical and emotional effects of crime. While difficult to measure[6], these victimisation costs can be significant and need to be included in any calculation of the total costs of crime. Not including victims’ intangible costs could risk biasing policy choices against preventing victimisation (one of the principal reasons for crime prevention activities).

We have estimated direct intangible costs to victims using the UK Home Office methodology (Dubourg, Hamed and Thorns, 2005). That methodology essentially takes health state outcome prevalence and duration indexes associated with a range of violent crime incidents (e.g. broken bones, bruising, concussion, miscarriage, and anxiety) and translates them into estimated losses of quality-adjusted life years (QALYs) and then into monetary terms through the application of an appropriate QALY valuation.

In the absence of similar New Zealand data, the UK monetary estimates for each comparable category of crime have been converted to New Zealand dollars using the OECD’s purchasing power parity for GDP index for 2004. It is implicitly assumed that the injuries sustained across various violent crimes (robbery, sexual assault, etc.) in the UK are similar to those in New Zealand in terms of type and severity.

5.2.4  Lost output

Many victims have to take time off work as a consequence of the emotional and physical impacts of crime. The value of this lost output also needs to be included in the calculation of costs of crime. This is regardless of whether the victim or employer is insured against loss of earnings, as the insurance merely shifts the burden of the loss (i.e. the actual loss to the economy remains unaffected).

The UK Home Office methodology uses the health state prevalence and duration indexes referred to above to estimate the total duration of time off work for each crime type, multiplying this by an estimate of average UK daily output to derive monetary estimates of the total cost of lost output by crime type. This approach implicitly assumes that crime victims are a representative sample of the overall population.

We have used these UK estimates to estimate crime-related lost output costs for New Zealand, converting the UK figures for each comparable crime category to New Zealand dollars using the OECD’s purchasing power parity for GDP index for 2004. It would be preferable to use New Zealand data for the lost output due to crime, but none exist.

5.2.5  Total private sector costs

The costs borne by the private sector described in the sections above total an estimated $7 billion per annum (Table 6). Intangible costs are by far the largest component, comprising over half of all costs borne by the private sector.