New challenges: if baby boomers continue to work during retirement, underwriters may need to rethink group disability benefits.

The notion of signing off from full-time work at age 65 for an unfettered retirement is about to be redefined by the outsized demographic bubble that has changed nearly every part of society it has bumped up against in its almost 60-year history--the baby boomers. This time they're changing how we'll think about retirement, and consequently, how employers and insurers will need to address group benefits options for an increasingly older work force. In the long-term disability market, for example, many insurers may already be under-pricing their disability coverage.

Let's take a look at what is happening.

Boomers are approaching retirement age in better health, with longer life expectancies and with higher levels of education than previous generations. For some, there also is a continued need to fund kids in college or offset some retirement costs. These factors mean more older workers will stay on the job. In fact, a majority of workers expect to work during "retirement," according to the Employee Benefit Research Institute.

Employers, too, are eyeing the resources and expertise of older workers with new interest. The U.S. Bureau of Labor Statistics projects a shortfall of 10 million workers in the United States during the next decade. Facing a spike in expected retirements, and with it, the loss of significant expertise, companies are likely to be looking for ways to continue to employ some older workers, perhaps on part-time schedules, beyond age 65 or 67 as they transition to a later retirement. This cohort of older workers is likely to want all the benefits it has grown accustomed to--even in part-time assignments--and indeed, extended benefits might be an attractive carrot for retaining skilled workers.

For the group insurance industry, a shift upwards in work-force age seems, at first glance, simple to address. After all, coverage for employer groups is re-evaluated and repriced every year as insurers review the group's experience and develop revised proposals. The prospect of a work force that increasingly includes workers in their late 60s and early 70s, however, is worthy of some study and some slightly different analysis.

In the realm of long-term disability insurance, particularly, these demographic changes prompt us to do something a little different: look ahead, instead of just looking at the claims experience of the past three or four years. We have to be mindful that, in disability lines, both incidence and costs of claims go up with the age of the insured. The result of a one-year rise in the average age of a typical employer group, for example, can increase disability costs by as much as 4% to 7%.

With the oldest boomers just shy of 60, now is a good time to strategize about the impact of workers who will seek out this "phased" retirement and choose to work after traditional retirement ages. How do we plan for a different kind of worker at the top end of the age range? Not only is incidence of claims likely to be higher among older workers, but the types of ailments probably will be more complex. The typical strained back of a younger worker, even with the rehabilitation challenges it brings, is largely different from the confluence of ailments--for example, diabetes complicated by high blood pressure--more characteristic in older people.

The challenge will be to price adequately and competitively for this new kind of disability claim, and to develop expertise in claims management keyed to chronic diseases and older workers. In these instances, it won't be a recovery from carpel tunnel surgery that we'll be asked to manage, but instead the complex issues intrinsic to multiple morbidities. The healing process, too, is different, and older patients often are not as resilient as younger ones. Some may not be as open to learning different skills for alternative responsibilities. Furthermore, the goal of returning an individual to work clearly might be complicated by the proximity of true retirement. Understanding the motivations of this set of educated, experienced, and chiefly healthier workers on the verge of retirement will ask us to refine how we manage claims and promote return to work, even at age 67 and beyond.

The boomers' new view of continued work as a bridge to a phased retirement will push employers and insurers to new approaches as we respond to an increasingly older work force. Because work forces already are rising in age year by year, for disability carriers and reinsurers, and the corporate clients we serve, it's important to begin to shift our thinking now.

Jerry Bannach is vice president, Disability Reinsurance for ING Re. ING Re is the reinsurance business of ReliaStar Life Insurance Company of Minneapolis, a member of the ING family of companies. He can be reached at [e-mail].