The Aging of the U.S. Population and the Property-Casualty Insurance Industry

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1 The Aging of the U.S. Population and the Property-Casualty Insurance Industry Steven N. Weisbart, Ph.D., CLU Vice President and Chief Economist Insurance Information Institute William Street, New York, NY Office phone: (212) Cell phone: (917) November 8, 2007

2 The Coming Changes in the U.S. Age Distribution

3 US Population: 2007 vs Projection* 85 and over 80 to to to to to to to to to to to to to to to 14 5 to 9 Under ,000 8,000 12,000 16,000 20,000 24,000 Population in each age group (in thousands) 65-69: Greatest growth, in terms of numbers 50-54: Least growth in numbers *Using the Census Bureau s Middle (i.e., most probable) projections Source: National Projections Program, Population Division, U.S. Census Bureau

4 US Population: 2007 vs Projection* 85 and over 80 to to 79 5,334 8,011 7,557 5,523 7, ,268 There will be nearly as many 85+ people in 2025 as there are today 70 to 74 8,440 16, to 69 10,721 19, to 64 14,269 21, ,000 8,000 12,000 16,000 20,000 24,000 Population in each age group (in thousands) *Using the Census Bureau s Middle (i.e., most probable) projections Source: National Projections Program, Population Division, U.S. Census Bureau

5 Population Projection Questions How accurate are these forecasts?

6 Forecast vs. Reality of Census Bureau Projections for Low Middle High 290 Millions of People The actual 2006 population exceeded the high 1996 forecast. Instead of Low, Middle, and High forecasts, future Census Bureau projections will be probabilistic distributions Forecast 2000 Forecast Actual 2006 Source: U.S. Bureau of the Census, (NP-T3-C) Population Projections Program, Population Projections of the Total Resident Population by 5-year age groups, middle series, released January 13, 2000.

7 Where will the growing 65+ population live? Source: Patricia S. Hu et al, Projecting Fatalities in Crashes Involving Older Drivers, , October 2000, Document ORNL-6963, p. 1-4.

8 Public Attitudes Regarding the Auto/Homeowners Industry

9 Consumer Perceptions of Auto/Homeowners Insurance Industry Percent with Favorable Perception 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% Today s seniors look more favorably on the P/C industry than younger people do 46% 51% 47% 47% 48% 48% 61% 49% 45% 58% 69% 70% 67% 52% 66% 5% 0% Age Groups 45 to to and over Source: I.I.I Insurance Pulse, July

10 Consumer Perceptions of Auto/Homeowners Insurance Industry 70% Percent with Favorable Perception 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 55% 58% 56% 49% 58% 50% 62% 56% 64% 63% Hispanics are the fastest growing segment of the US population. Hispanics, now 6% of those 65+, will be 11% in 2030 and 18% in % 65% 59% 45% 57% 0% White Black Hispanic Sources: I.I.I. Insurance Pulse, July ; 65+ in the United States, U.S. Census Bureau, December 2005, p. 6.

11 Driving Behavior and Auto Insurance

12 Percent of Elderly Drivers in 1995, by age group Source: Patricia S. Hu et al, Projecting Fatalities in Crashes Involving Older Drivers, , October 2000, Document ORNL-6963, pp. 6-1 and 6-9. Men Women 90% 80% 87% 80% Percent of Active Drives 70% 60% 50% 40% 30% 20% 69% 51% 62% 23% This was 4 percent in % 0% Age Age Age 85+

13 Projected Active Elderly Drivers as % of the Age Group Population in 2025 Source: Patricia S. Hu et al, Projecting Fatalities in Crashes Involving Older Drivers, , October 2000, Document ORNL-6963, p Men Women Percent of Active Drives 100% 90% 80% 70% 60% 50% 40% 30% 20% 92% 83% 90% 74% 86% 69% 83% 57% 64% This was 23% in % 10% 0%

14 Careful Underwriting Required for Elderly Drivers Elderly Driver Accident Behavior Doesn t Correlate with Moving Violations Source: QPC Press Release, dated September 29, 2003, accessed at

15 Factors Affecting Seniors Driving Behavior Why They Will Drive More Than Current Seniors Do More will be employed and will drive to work More will be caring for elderly parents/siblings More will be healthier and will want to and be able to go places More will move to newly-developed areas that don t have convenient public transportation Why They Will Drive Less Than Current Seniors Do Because they will depend on successful personal money management for income, some perhaps many won t be able to afford to keep a car

16 Elements of the Decision to Drive Elderly people are more likely to drive 1. The higher their income 2. If they are employed 3. The better their health status 4. If they live where there is less suitable public transportation 5. If there is no other driver in the household Also, there has been an increase over time in the likelihood of elderly people to drive that isn t accounted for by the factors above Points 2 and 3 above suggest that the percent of elderly drivers will grow in the future. Points 1 and 4 suggest that the percent might shrink in the future. Source: Patricia S. Hu et al, Projecting Fatalities in Crashes Involving Older Drivers, , October 2000, Document ORNL-6963, Chapter 6.

17 Source: Insurance Institute for Highway Safety, Status Report, Vol. 38, No. 3 (March 15, 2003).

18 Source: Insurance Institute for Highway Safety, Status Report, Vol. 38, No. 3 (March 15, 2003).

19 Auto Driving Behavior of the Elderly Prediction: The Baby Boom generation will be the first one the amount, stability, and duration of whose retirement income will depend on their success in personal financial management. Prediction: From , total annual mileage driven by older drivers will increase by 500% As their driving increases and incomes decline/vary, will seniors not buy newer, safer cars? Not replace worn brakes, worn tires? Will auto insurers offer transportation services in order to get impaired/unsafe elderly drivers to stop driving? Will auto insurers create underwriting programs that incorporate the results of tests of driving ability?

20 Auto Insuring Behavior of the Elderly Prediction: Those over 65, especially those not employed full-time, will use the internet to form auto insurance buying communities They might create reciprocal or mutual insurance companies that specialize in insuring elderly drivers

21 Implications of Aging Drivers for Commercial Auto Insurance The Over-50 Crowd Takes to the Road In Paid Big-Rig Gigs by Stephanie Chen Faced with a worsening shortage of long-haul truck drivers, freight carriers are turning to the RV generation, aggressively recruiting older couples like the Fords to climb behind the wheel. Schneider National Inc., the Green Bay, Wis., company that hired the Fords [he s 57; she s 51] and put them through driving school, fishes for applicants through AARP, the advocacy group for people 50 and older, and has a Web page for mature workers. This fall, the American Trucking Association plans a billboard and television ad blitz to lure older drivers. Source: Wall Street Journal, August 24, 2006, p. 1

22 Workers Compensation

23 Quarterly Labor Force Participation Rate, Ages 65-69, Labor Force participation rate 32.0% 22.1% 22.5% 22.3% 23.0% 22.8% 23.0% 22.9% 23.5% 24.4% 24.4% 24.3% 24.4% 24.4% 24.9% 24.8% 25.2% 25.2% 26.3% 26.5% 26.2% 27.2% 27.0% 26.8% 27.4% 27.3% 27.9% 27.9% 27.8% 27.6% 27.6% 27.9% 28.5% 28.7% 29.3% 29.5% 29.3% 29.1% 30.1% 30.8% 30.0% 28.0% 26.0% The labor force participation rate for workers has grown considerably since It might grow even faster in the future as seniors find they can t fully retire on their meager retirement savings. 24.0% 22.0% % Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

24 Quarterly Labor Force Participation Rate, Ages 70-74, Labor Force participation rate 20.0% 18.0% The labor force participation rate for workers has also grown considerably by about 50% since It too might grow even faster in the future as seniors find they can t fully retire on their meager retirement savings. 12.5% 12.2% 12.4% 12.4% 12.9% 13.1% 13.1% 13.6% 13.3% 13.5% 13.6% 13.8% 13.7% 13.8% 14.2% 14.2% 14.0% 14.0% 14.4% 14.2% 14.4% 14.4% 14.6% 14.9% 14.9% 15.4% 15.6% 15.3% 15.8% 16.4% 16.2% 17.0% 16.7% 16.9% 17.2% 17.0% 16.7% 16.8% 18.0% 16.0% 14.0% % 10.0% Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

25 Median Days Away From Work Due to Injury or Illness, by Age Group Median Days Away From Work (2005) There will be more lost time as the workforce ages in the future Source: US Bureau of Labor Statistics, US Department of Labor

26 Distribution of Non-Fatal Work Injury Days Away From Work, by Length of Period and Age group, Ages 45 and over, 2005 Percentage of cases Ages Age Age 65 and over 40% 35% 30% 25% Seniors take longer to return recover. to work 28.4% 30.2% 34.5% 20% 15% 10% 5% 0% 12.2% 12.0% 9.3% 10.2% 9.1% 6.9% 17.9% 16.7% 16.3% 12.3% 11.6% 15.3% 11.9% 12.3% 11.3% 7.2% 8.2% 6.4% 1 day 2 days 3-5 days 6-10 days days days 31+ days Source: US Bureau of Labor Statistics, US Department of Labor, Table 8 from 2005 Survey of Nonfatal Occupational Injuries and Illnesses Requiring Days Away from Work, Revised data released

27 Fatal Work Injury Rates Climb Sharply With Age Fatal Work Injuries per 100,000 Workers (2006) The fatality rate for workers 65 and older is triple that of workers age The workplace of the future will have to be completely redesigned to accommodate the surge in older workers Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

28 Workers Compensation and Medicare No Help from Medicare Medicare law has long specified that If Workers Compensation is available, Medicare will pay nothing, Medicare will pay if costs remain after all WC medical benefits are exhausted, and If Medicare does pay a bill, it has a right of recovery from the employer or WC insurer. Source: Title 42 Code of Federal Regulations, Section 411 et seq.

29 Workers Compensation and Medicare and Maybe a Fight from Medicare Medicare is worried that, for workers who are covered by, or eligible for, Medicare, it will be stuck with costs shifted from those responsible for paying WC costs. So, in those cases, It wants to review, and maybe disapprove, Workers Compensation settlements, if it believes there is insufficient WC money to pay for future medical costs, This may align Medicare with workers against employers and WC insurers This will increase WC administration costs

30 Workers Compensation and Social Security Interaction of WC with Social Security Disability Income Social Security Disability Income is offset for WC indemnity payments For disabled workers under age 65 and their families The worker s and family s SS DI benefit may be cut so that, together with the WC benefit, it is limited to 80 percent of the worker s average current earnings. But 18 states and Puerto Rico have a reverse offset (reducing WC payments when SS DI is payable), negating the SS DI offset Since 1981, no new states may adopt reverse offsets The SS DI trust fund s 2007 trustee report projects the fund to be exhausted by 2029!

31 Workers Compensation and Social Security Effect on WC Claims of Social Security Retirement Income When a SS DI recipient reaches the full benefit retirement age, the DI benefit becomes a retirement benefit Social Security Retirement Income is not offset for WC indemnity payments So disabled workers age 66 and over can collect both moral hazard?

32 Effect on Insurers as Employers Will Seniors Who re Seeking Part-time and/or Seasonal Work Help Overcome Shortages of Agents Claims Adjusters Underwriters Call Center Personnel Will Seniors be Able and/or Willing to Tele-commute?

33 Final Thoughts: Forecasting Challenges and Leftover Questions

34 Other Demographic Projections The Social Security Administration forecasts female life expectancy (from birth) will increase to 83.9 in 2060 (from about 80.8 today). But current female life expectancy in Japan is already Is it possible that in 50 years US females will have a lower life expectancy than Japanese women do now? Female life expectancy in the record-holding country has risen for 160 years at a steady pace of 3 months per year. There is no evidence of this pace slowing. If this pace continues, female life expectancy in developed countries in 2060 will be between 95 and 100. Remember, life expectancy is a mean, not an upper limit. Source: James W. Vaupel, Director, Max Planck Institute for Demographic Research, in World Economic Forum, 2004, quoted in G. Reday-Mulvey, Working Beyond 60: Key Policies and Practices in Europe, (New York: Macmillan, 2005), p. 13.

35 degrey: Within a few decades, we ll have perfected cellular engineering so that people could live for hundreds of years if we fix cellular damage when it occurs and don t wait for it to wreak greater damage.

36 Leftover Questions As insurance claimants, will seniors need/want more hand-holding than younger claimants? With more time on their hands and more experience in the workforce, will seniors be more demanding, perhaps even more litigious? Will you establish distinctive distribution/service channels for them? Larger policy type sizes? Audio versions? Computer-based versions with help windows, interactivity? Special phone centers? Staffed by other seniors? Will seniors resist testing that aims to determine whether they are competent to drive? If they won t take/don t pass a test, will you surcharge them? Will car manufacturers design and build cars especially tailored to the needs of senior drivers? Will employers redesign workplaces and work processes to reduce the injury potential for senior workers?

37 INSURANCE INFORMATION INSTITUTE ON-LINE If you would like a copy of this presentation, please give me your business card with address Steven N. Weisbart, Ph.D., CLU Vice President and Economist Insurance Information Institute 110 William Street New York, NY Office Tel: (212) Cell phone: (917) stevenw@iii.org

38 The Future of Social Security s Disability and Medicare Trust Funds

39 Social Security Disability Trust Fund: Forecast of Changes Intermediate Low Cost High Cost $350 $300 Change in Trust Funds (billions $250 $200 $150 $100 $50 Under High Cost Assumptions, the DI Trust Fund will be exhausted in Early Under Intermediate Cost Assumptions, the DI Trust Fund will last until $ Source: 2007 Annual Report of the Trustees of the OASDI Trust Funds, p. 36

40 Social Security Medicare A Trust Fund: Asset Forecast Intermediate Low Cost High Cost Change in Trust Funds (billions $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Under High Cost Assumptions, the HI Trust Fund will be exhausted in Late Source: 2007 Annual Report of the Medicare Boards of Trustees, p. 52.

41 Social Security: Selected Long-Range Forecast Assumptions Item Total fertility rate (children per woman) Productivity growth (annual change, total U.S. economy) Growth rate of average wages in covered employment (annual % growth) Unemployment rate Inflation (annual % change in CPI) Low Cost (Good) % 3.4% 4.5% 1.8% Intermediate Cost % 3.9% 5.5% 2.8% High Cost (Bad) % 4.4% 6.5% 3.8% Current %* 4.0% 4.6% 2.4% *2Q2007 vs. 2Q2006 for nonfinancial corporations; preliminary. But see also BusinessWeek, Sept. 24, 2007, p. 32: nonfarm business productivity, averaged over the last four quarters, is up only 0.5% compared with the previous year. Source: 2007 Annual Report of the Trustees of the OASDI Trust Funds, p. 6

42 The Aging of the Baby Boom Generation Millions of People and over Source: U.S. Census Bureau, Projections of the Resident Population, 1999 to 2100, issued 1/13/2000.

43 Caregivers: The Parent Support Ratio Parent Support Ratio Parent Support Ratio the Number of people aged 85+ per 100 people aged At about 1:10 today, it will triple by Effect on a distracted workforce? Source: U.S. Census Bureau, 65+ in the United States, issued December 2005, p. 27.

44 U.S. Workforce is Aging: Significant Implications for Workers Comp Median Age of U.S. Worker An older and less healthy workforce? Today the median age of US workers is about 41. Will Boomers who stay in the workforce drive it higher? Year Source: US Bureau of Labor Statistics, 2004.

Mega-Trends Influencing the Workers Compensation Insurance Industry

Mega-Trends Influencing the Workers Compensation Insurance Industry 5th Annual National Workers Compensation Insurance ExecuSummit New York, NY February 5, 2008 Steven N. Weisbart, Ph.D., CLU, Vice President