Living longer, driving longer: for personal lines insurers, aging baby boomers represent a generation of increased liabilities.

By the year 2050, the U.S. Census Bureau anticipates nearly 87 million Americans, representing some 21% of the total U.S. population, will be age 65 and older. Many are expected to own homes and drive cars, and all of those will need insurance.

Statistics like these are driving property/casualty insurers to project their own future needs as the largest generation of all time, the baby boomers, begins to pass the 60-year-old mark. And it's none too soon, as some experts suggest many boomers and upcoming generations could live to see their 100th birthdays.

The boomers, now 78 million strong, represent enormous insurance implications as they age. With risks increasing for both auto insurance and homeowners, some carriers are starting to design products to accommodate all those extra seniors, though few are talking about it publicly.

"I wouldn't be surprised if there wasn't some research going on now trying to associate liability or property claims with the age of policyholders," said Joseph Harrington, director of corporate communications for the American Association of Insurance Services in Wheaton, Ill.

The search for variables associated with loss--and combinations of those variables--began in the P/C insurance industry with credit scoring; it's called predictive analysis, Harrington said. "Predictive analysis is a huge hot topic in insurance that assumes the age of the policyholder and all sorts of factors."

Actuaries are working with data-mining companies on predictive analyses on what characteristics or behaviors correlate with losses, and in what combinations.

"We are unlikely to see one 'Aha!' factor correlating with loss above all others. We're likely to see companies compete to identify new ways of combining information on markets to come up with pricing that is most precise," Harrington said. "They're all working on it, for sure, and it's something that will never be done ... what correlates to loss this year may be a little bit of what correlates to loss next year, combined with other factors."

"Whether anyone has identified correlations between the age of the policyholder and loss is probably something that they are keeping close to the vest," he said.

Such factors are highly prized and competitive. "Keep in mind it is increasingly not a single factor; it's highly unlikely that one could estimate a loss increase or decrease with age. But, age plus other factors may contribute to a loss," Harrington said.

Carriers aren't saying much, noted Sharon Emek, chairwoman of the Independent Agents and Brokers of New York, an arm of the national organization. She also is chair of its public policy commission and a partner with independent agency CBS Coverage Group, with offices in Manhattan and Plainview, N.Y.

Most carriers she's contacted said age factoring is not that high on their priority list. "But I suspect they are beginning to charge the elderly a little more in their ratings," Emek said. "No one is saying it verbally, but I believe that they're looking more carefully at people in their 80s driving cars, and seeing if they've had accidents."

Statistics show elderly drivers are second only to teens when it comes to auto fatalities.

Emek believes personal auto carriers are charging older drivers higher rates through multitiered pricing--looking at each senior's driving history to place him or her in an appropriate tier. Emek's father, who is 88, had an accident not long ago while pulling out of his driveway. "Under normal circumstances, if he were in his 40s, they would look at it as fluke. But they're not, and he's going to be paying a little more money" she said.

Auto Liabilities

By 2030, Americans age 65 and older are projected to represent 25% of the driving population, and 25% of all fatal crash involvements, according to the Insurance Information Institute. The high death rate among older drivers is attributed to their frailty.

When compared with drivers in other groups, seniors have low crash rates per capita; but when fatalities are measured per miles driven, the fatality rate for seniors rises dramatically:

* In 2005, Americans age 65 and older represented 15% of all traffic fatalities; 14% of vehicle occupant fatalities; and 20% of pedestrian fatalities.

* In 2005, 79% of fatal accidents involving older drivers happened during daylight hours; 73% involved another vehicle.

* In two-vehicle crashes involving an older driver and a younger driver, the older drivers' vehicles were nearly twice as likely to be struck as were the younger drivers' vehicles (60'% versus 33%).

Elderly drivers can lose senses and reflexes as they age; traffic patterns can increase or become more in tense than they were when the driver was younger and more able.

"A lot of [insurance] agents are baby boomers and they have elderly parents who are still driving their cars, and it's very hard to say to your parent, 'I am taking away your car'" Emek said.

Taking away a parent's driver's license is a big issue at IIABNY. Emek would like to see a federal requirement to make her parents take a driving test so if they failed she wouldn't be the one to blame: "No one would have to be the bad guy. The kids aren't the bad guys; the industry isn't the bad guys; that's just the reality."

Currently, 34 states require drivers of all ages to take a vision test at license renewal, and 13 states require a doctor to report any dangerous medical conditions that can impair a patient's driving, according to the III.

In addition, California specifically requires doctors to report a diagnosis of dementia, a common symptom of Alzheimer's disease. A Missouri law protects the identity of close family members or doctors who report incompetent drivers to the state driver-licensing agency. In Illinois and New Hampshire, drivers over the age of 75 must take a road test when they renew their license; and in Indiana, vision, road and written tests are required at license renewal.

Some insurance companies offer discounts to older drivers who take defensive driving or other drivers' education courses, and the state of Alabama offers a 5% discount for senior drivers who take a minimum of eight hours of auto safety training.

Homeowners Risks

In anticipation of an aging boomer population, carriers are looking at the ages of the head of household, the house itself, its plumbing, its electrical wiring, and so on, Harrington said. That's in addition to more common factors, like living within a high-risk zone.

"It is that type of determination that is increasingly viewed as proprietary knowledge that insurers are not going to want to share openly, and is increasingly tied to a complex network of other factors," Harrington said.

Another top consideration for older personal-lines clients is who truly owns and controls the property. Adding adult children or other parties to the ownership of an elderly person's home changes the insurance exposure.

"Typically they might have some coverage for an informal arrangement but to the extent that arrangements are more formal, do they lose coverage?" Harrington said. "It's one thing to be covered for incidental liability if you're mowing your mother's lawn ... does it change if you become a trustee or some type of temporary management? Is there a coverage gap there?"

There are a range of age-related issues that insureds should review with an agent, although an agent is unlikely to broach the subject with a client, he said.

Living conditions can change dramatically as a person ages, thus changing the exposures covered under the homeowners policy:

* Homes can become vacant for months at a time as an older person travels, recuperates or visits family.

* Guest accident exposure increases as elderly policyholders tend to have elderly friends, who are more prone to serious injury; caregivers and relatives stop by more often, increasing the exposure to injury; liability increases as more people enter the home and use appliances they are not used to handling.

* Property exposure to theft increases as more people have access to the home.

"The homeowners premium is generally an affordable line of coverage, except in states with big catastrophe exposures," Harrington said. "The amount of premium would shoot up exponentially if every company or agent were expected to conduct exhaustive risk reviews. It really is up to insureds to understand that not every arrangement is necessarily covered."

The standard homeowners insurance product is being adapted somewhat to correlate with what Harrington calls a "transitional family arrangement."

AAIS is providing a new form toward its countrywide standardized homeowners program for carriers, which would allow someone to provide certain property coverage under his or her homeowners policy for an elderly person living in an assisted living facility. There are additional and separate sublimits the policyholder can have added, such as coverage for hearing aids, eyeglasses, wheelchairs and other medical items commonly used by the elderly.

"That's another reflection of the homeowners product being made to [fit] the new transitional household arrangement in the U.S.: whether you're a young student, elderly or handicapped living in a permanent but not traditional arrangement, you can have coverage that's connected to an established household," Harrington said. "It's something else that's likely to be called more and more into use as the population ages."

Brain Power

The physical and mental fitness of people as they age also has to be considered. "A lot of boomers are fit; a lot of boomers have longevity. So while these aging issues may grow in importance, it would be wrong to suggest that they would generally characterize the market," Harrington said." I would personally be surprised to see that."

The IIABNY is looking at the possibility of launching a research project into the aging of America and what it means for the industry, Emek said. "The question we'll have to deal with if we're living longer is, are we mentally capable longer?"

Most boomers likely will continue to be good risks as they age, Harrington said. "Most of them do have savings and net worth; most of them will be responsible customers. To price competitively, there will be a number of tools in the insurer's toolbox."

There are new exposures insurers need to be aware of as boomers age, but there also are new emerging technologies for maximizing those exposures. Houses are being built better and technology is being used to help the elderly ward off infirmity, to prevent or deal with fire, provide home security and automated lighting, and other safety features that would continue to make the established elderly of the coming years "good risks."

"The cost of some of these in relation to insurance may be something that an insured may be interested in," he said. "These things aren't cheap, but they are perhaps in the realm where the benefits may be something that insurers can establish incentives for."

Proposing Legislation

Emek fears the insurance industry will be forced to make a stand where elderly boomers are concerned, and raise rates or rate according to age. But she'd rather see it done through legal channels.

"Maybe some of it has to be through lobbying for some legislation," Emek said.

The P/C insurance industry certainly "doesn't want to take a black eye" and be the one to initiate solutions, vis-a-vis rate hikes, to deal with the situation of an immensely large senior population. But it may have to, as risks increase and lobbying efforts for legislation lag.

"I'm afraid it's the insurance industry that's going to become the social monitor of this, as opposed to regulators," Emek said. "What's going to happen is insurance agencies will raise premiums and then everybody is going to blame the insurance industry as a social issue"

"Each insurer, I'm sure, is addressing it in some way," Emek said. "We don't want to be the instigator of the public conversation. I think if they take the lead it would look like they're looking for more premium. It would be negative press, but they have to deal with it nonetheless. But the reality of the issue is going to dictate that; they have to come up with some new underwriting criteria to deal with it."

Key Points

* As the massive baby-boomer generation ages, its personal lines liabilities increase exponentially.

* Carriers are beginning to research new rating criteria for older policy-holders, but aren't publicizing their results.

* Federal legislation could address some auto insurance concerns for the elderly, making the roads safer and the risks lower.

* Homeowners insurance needs to make provisions for changes in the American family.

Make Room for Seniors

The Hanover Insurance Group of Worcester, Mass., offers Connections Auto, "a multivariate auto product that helps our company's independent agent partners quote and issue business for approximately 95% of the market, enabling them to write policies for customers that may have been previously turned away," said company spokesperson Amy Banek.

Launched in 2005, Connections Auto is part of Hanover's personal-lines product suite, which includes auto, homeowners and umbrella coverage for 17 states. The product has been a boon to Hanover, generating some $100 million of business within its first 12 months, the company said.

"As an independent insurance agency, we work with various types of clients and we believe Connections Auto will help us to round out accounts for many of them," said agent Donna Bettis of First Arkansas Insurance in Hot Springs Village, Ark. "In particular, the product will be attractive for many of our senior drivers, who in the past, we have insured for their homes, but were unable to place their automobile policies."

Sam Engardio, senior vice president for Kapnick Insurance Group of Michigan, said his agency wrote 100 new Connections Auto policies on the first day the product was offered in that state. "By empowering our independent agents to write policies for clients from the time they are teenagers throughout their senior years, Connections Auto has helped strengthen [client] bonds," he said.

Learn More

Hanover Insurance Group A.M. Best Co. # 04861 Distribution: Independent agencies

For rating and other financial strength information about this company, visit www.ambest.com.

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Involvement of the Older Population in Traffic Fatalities-2005

                                  Age 65+

                                       % of
                     Total    Number   Total

Population (000)    296,410   36,790    12.4
Drivers involved
  in fatal crashes   59,104    6,215    10.5
Driver fatalities    27,472    3,935    14.3
Total traffic
  fatalities         43,443    6,512    15.0
Occupant
  fatalities         37,594    5,412    14.4
Pedestrian
  fatalities          4,881      981    20.1

Source: Insurance Information Institute. U.S. Department of
Transportation, National Highway Safety Administration