Boom and bust? Insurers face new challenges as the baby boom generation may have to work beyond age 70 to maintain its current standard of living.

As most readers are aware, there will be a sharp and unprecedented growth in the number and percent of older people in the coming years, due in large part to the birth spike from 1946 to 1964--the baby boom generation--and lengthening life spans. Most discussions focus on this population's effects on retirement programs--mainly Social Security--and health care. But other sectors of the economy, including the property-liability insurance industry, will feel its effects.

The table below shows the current U.S. population and projections in five-year intervals through 2030, based on the U.S. Census Bureau's "Middle" projection. For perspective, in 2030 every "boomer" will be 65 or older.

A key question is how many in the 65 to 69 and 70 to 74 age groups will continue in the work force. In one recent survey, 68% of people now working said they expect to work in "retirement," but currently only 32% do. In another survey, a majority of boomers who expect to continue working, expect to stay to 70 or later to be able to retire with enough income. One respected economic analysis, by Robert D. Arnott and Anne Casscells, concludes that the only effective way for Americans as a group to avoid widespread cutbacks in future living standards is for most workers to stay on the job to age 72 or 73.

But the work site can be a hazardous place for older workers. According to the National Safety Council, workers over 65 are nearly three times as likely to be killed on the job. For nonfatal injuries, workers over 55 need an average of 12 days to return to work compared with six days for workers age 25 to 34. Will employers change working conditions and/or employment practices to reduce high injury and death rates among older workers? Will workers' compensation underwriting and rates encourage or discourage employment of older workers? Hiring or retaining workers 65 and older, particularly those willing to job-share or work part-time, can help, but ways must be devised to constrain the cohort's workers' comp and health-care insurance costs.

Even if retirees don't need to work for income, the conventional wisdom is that they should keep active and productive, perhaps by doing volunteer work. But how will the economy make effective use of 77 million volunteers? What will be the liability issues relating to the work they perform?

What about the over-65 crowd as customers? Given their stage of life, they're likely to be risk-averse, receptive to the risk transfer mad related services insurance provides. Yet they're also likely to cling to habitual behaviors. By 2015, for example, there could be an additional (compared with today) 1 million automobile drivers who are age 85 and over. Will advances in medicine and improved accident-avoidance systems on new cars make these octogenarians safer drivers than their counterparts today? If not, how aggressive will insurers be in identifying those who should no longer be driving? Current data show that older people have more house fires than younger ones; will companies start rating homeowners coverage by age?

Experts fear that many soon-to-be-retirees fail to understand and are ill-prepared to manage the longevity risk they face, and that many will face the threat of "outliving their income." How will this affect insurance-related matters? Will we see higher numbers of elderly people going without home and car insurance?

These customers may demand additional help in procuring coverage, submitting claims and other services. Yet retirees may be sensitive to pressures on their income, such as from increases in personal-lines insurance premiums. Since they will be a significant customer group, insurers may want to devise innovative ways to meet these conflicting pressures.

These are just a few of the ways that the aging of the U.S. population might affect the insurance industry in the years ahead. The leading edge of this huge, transformative wave is already upon us, so the sooner we begin visualizing its impact, the better we can prepare for its effects.

Contributor Steven N. Weisbart is an economist with the Insurance Information Institute. He can he reached at [e-mail].

U.S. Population Projections for Specified
Age Groups, 2005-2030

(Millions)

Age Group   20-64   65-69   70-74   75-84

2005        171.4    10.1     8.4    13.0
2010        179.0    12.2     9.0    12.8
2015        183.7    15.4    10.9    13.3
2020        185.5    17.6    13.9    15.5
2025        185.9    19.7    15.9    19.6
2030        188.1    19.8    17.9    23.7

                     95    Total,
                     and   65 and
Age Group   85-94   over    over

2005         4.4     0.5    36.4
2010         5.1     0.7    39.8
2015         5.5     0.9    46.0
2020         5.7     1.1    53.7
2025         6.2     1.3    62.6
2030         7.5     1.4    70.3

Source: Projections of the Resident Population: 1999 to 2100,
U.S. Census Bureau, Issued Jan. 13, 2000.