Steven N. Weisbart, Ph.D., CLUVice President and Chief EconomistInsurance Information Institute www.iii.org110 William Street, New York, NY 10038Office phone: (212) 346-5540 Cell phone: (917) 494-5945 email: stevenw@iii.org

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

Insurance Industry

November 8, 2007

The Coming Changesin

the U.S. Age Distribution

US Population: 2007 vs. 2025 Projection*

0 4,000 8,000 12,000 16,000 20,000 24,000

Under 55 to 9

10 to 1415 to 1920 to 2425 to 2930 to 3435 to 3940 to 4445 to 4950 to 5455 to 5960 to 6465 to 6970 to 7475 to 7980 to 84

85 and over

2007 2025

Source: National Projections Program, Population Division, U.S. Census Bureau

*Using the Census Bureau’s Middle (i.e., most probable) projections

Population in each age group (in thousands)

65-69: Greatest growth, in terms of

numbers

50-54: Least growth in numbers

US Population: 2007 vs. 2025 Projection*

14,269

10,721

8,440

7,361

5,523

5,334

21,128

19,647

16,041

12,268

7,557

8,011

0 4,000 8,000 12,000 16,000 20,000 24,000

60 to 64

65 to 69

70 to 74

75 to 79

80 to 84

85 and over

2007 2025

Source: National Projections Program, Population Division, U.S. Census Bureau

*Using the Census Bureau’s Middle (i.e., most probable) projections

Population in each age group (in thousands)

There will be nearly as many

85+ people in 2025 as there are 70-74

today

How accurate are these forecasts?

Population Projection Questions

250

260

270

280

290

300

1996 Forecast 2000 Forecast Actual 2006

Mill

ions

of P

eopl

eLow Middle High

Forecast vs. Reality of Census Bureau Projections for 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.

The actual 2006 population

exceeded the “high”1996 forecast.

Instead of Low, Middle, and High forecasts, future Census

Bureau projections will be probabilistic distributions.

Where will the growing 65+ population live?

Source: Patricia S. Hu et al, Projecting Fatalities in Crashes Involving Older Drivers, 2000-2025, October 2000, Document ORNL-6963, p. 1-4.

Public Attitudes Regarding the

Auto/Homeowners Industry

46% 48%

69%

61%

70%

47% 49%

67%

47%

45%

52%

48%

58%

66%

51%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

45 to 54 55 to 64 65 and over

Perc

ent w

ith F

avor

able

Per

cept

ion

2003 2004 2005 2006 2007

Consumer Perceptions of Auto/Homeowners Insurance Industry

Source: I.I.I. 2006 Insurance Pulse, July 2003-2007.

Age Groups

Today’s seniors look more

favorably on the P/C industry than younger people do

50%

66%

58% 62

% 65%

56% 59

%

49%

64%

45%

58% 63

%

57%

55%

56%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

White Black Hispanic

Perc

ent w

ith F

avor

able

Per

cept

ion

2003 2004 2005 2006 2007

Consumer Perceptions of Auto/Homeowners Insurance Industry

Sources: I.I.I. Insurance Pulse, July 2005-7; 65+ in the United States, U.S. Census Bureau, December 2005, p. 6.

Hispanics are the fastest growing segment of the US population.

Hispanics, now 6% of those 65+, will be 11% in 2030 and 18% in 2050.

Driving Behaviorand

Auto Insurance

87%80%

62%69%

51%

23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Age 65-74 Age 75-84 Age 85+

Perc

ent o

f Act

ive

Driv

esMen Women

Percent of Elderly Drivers in 1995, by age group

Source: Patricia S. Hu et al, Projecting Fatalities in Crashes Involving Older Drivers, 2000-2025, October 2000, Document ORNL-6963, pp. 6-1 and 6-9.

This was 4 percent in 1977.

92% 90%86%

83%

64%

83%

74%69%

57%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

65-69 70-74 75-79 80-84 85+

Perc

ent o

f Act

ive

Driv

esMen Women

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, 2000-2025, October 2000, Document ORNL-6963, p. 6-10.

This was 23% in 1995.

Elderly Driver Accident Behavior Doesn’t Correlate with Moving Violations

Careful Underwriting Required for Elderly Drivers

Source: QPC Press Release, dated September 29, 2003, accessed 11-6-2007 at www.qualityplanning.com/qpc_resources_public/news/030929-Older%20drivers.htm

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

Factors Affecting Seniors’ Driving Behavior

Elderly people are more likely to drive1. The higher their income2. If they are employed3. The better their health status4. If they live where there is less suitable public

transportation5. 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.

Elements of the Decision to Drive

Source: Patricia S. Hu et al, Projecting Fatalities in Crashes Involving Older Drivers, 2000-2025,October 2000, Document ORNL-6963, Chapter 6.

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

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

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 1990-2020, 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?

Auto Driving 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

Auto Insuring Behavior of the Elderly

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

Workers Compensation

Quarterly Labor Force Participation Rate, Ages 65-69, 1998-2007

25.2

%

25.2

%

26.3

%

26.5

%

26.2

%

27.9

%

27.2

%

27.4

% 27.9

%

27.3

% 27.8

%

27.6

%

26.8

% 27.6

%

29.3

%

29.5

%

27.9

% 28.5

%

28.7

%

30.8

%

29.3

% 30.1

%

29.1

%

27.0

%

22.9

%

23.0

%

22.8

%

23.0

%

22.3

%

22.5

%

22.1

%

23.5

%

24.4

%

24.4

%

24.3

% 24.9

%

24.4

%

24.4

%

24.8

%

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

32.0%

1998

.119

98.2

1998

.319

98.4

1999

.119

99.2

1999

.319

99.4

2000

.120

00.2

2000

.320

00.4

2001

.120

01.2

2001

.320

01.4

2002

.120

02.2

2002

.320

02.4

2003

.120

03.2

2003

.320

03.4

2004

.120

04.2

2004

.320

04.4

2005

.120

05.2

2005

.320

05.4

2006

.120

06.2

2006

.320

06.4

2007

.120

07.2

2007

.3

Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

The labor force participation rate for workers 65-69 has grown

considerably since 1998. It might grow even faster in the future as

seniors find they can’t fully retire on their meager retirement savings.

Labor Force participation rate

Quarterly Labor Force Participation Rate, Ages 70-74, 1998-2007

14.2

%

13.8

% 14.2

%

14.0

%

14.0

% 14.4

%

14.4

% 14.9

%

14.9

% 15.4

%

15.6

%

15.3

%

16.4

% 17.0

%

15.8

% 16.2

% 16.7

%

16.9

%

17.2

%

17.0

%

16.7

%

16.8

%

18.0

%

14.6

%

13.1

%13.6

%

12.4

%12.9

%

12.4

%

12.2

%

12.5

% 13.1

%

13.3

%

13.5

%

13.6

%

13.8

% 14.4

%

13.7

% 14.2

%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1998

.119

98.2

1998

.319

98.4

1999

.119

99.2

1999

.319

99.4

2000

.120

00.2

2000

.320

00.4

2001

.120

01.2

2001

.320

01.4

2002

.120

02.2

2002

.320

02.4

2003

.120

03.2

2003

.320

03.4

2004

.120

04.2

2004

.320

04.4

2005

.120

05.2

2005

.320

05.4

2006

.120

06.2

2006

.320

06.4

2007

.120

07.2

2007

.3

Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

The labor force participation rate for workers 70-74 has also grown

considerably—by about 50%—since 1998. It too might grow even faster in the future

as seniors find they can’t fully retire on their meager retirement savings.

Labor Force participation rate

Median Days Away From Work Due to Injury or Illness, by Age Group

1211

10

8

6

44

0

2

4

6

8

10

12

14

16-19 20-24 25-34 35-44 45-54 55-64 65+

Source: US Bureau of Labor Statistics, US Department of Labor

There will be more lost time as the workforce ages in the future.

Median Days Away From Work (2005)

Distribution of Non-Fatal Work Injury Days Away From Work,by Length of Period and Age group, Ages 45 and over, 2005

12.0

%

9.1%

16.7

%

11.6

%

12.3

%

8.2%

30.2

%

9.3%

6.9%

16.3

%

15.3

%

11.3

%

6.4%

34.5

%

28.4

%

7.2%

11.9

%

12.3

%

17.9

%

10.2

%

12.2

%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 day 2 days 3-5 days 6-10 days 11-20 days 21-30 days 31+ days

Ages 45-54 Age 55-64 Age 65 and over

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 11-17-2006.

Percentage of cases

Seniors take longer to recover.

Seniors take longer to return to

work

Fatal Work Injury Rates Climb Sharply With Age

4.94.03.63.22.72.7

0.8

10.8

0

2

4

6

8

10

12

16-17 18-19 20-24 25-34 35-44 45-54 55-64 65+

Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

The fatality rate for workers 65 and older is triple that of workers age 35-44. The workplace of the future will have to be completely redesigned to accommodate the

surge in older workers.

Fatal Work Injuries per 100,000 Workers (2006)

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.

Workers Compensation and Medicare

Source: Title 42 Code of Federal Regulations, Section 411 et seq.

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 againstemployers and WC insurers

• This will increase WC administration costs

Workers Compensation and Medicare

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!

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?

Workers Compensation and Social Security

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 toTele-commute?

Effect on Insurers as Employers

Final Thoughts: Forecasting Challenges

andLeftover Questions

• 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 85.2. 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.

Other Demographic Projections

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.

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.

• 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?

Leftover Questions

www.iii.orgIf you would like a copy of this presentation, please give me your business card with email address

Steven N. Weisbart, Ph.D., CLUVice President and EconomistInsurance Information Institute110 William StreetNew York, NY 10038Office Tel: (212) 346-5540Cell phone: (917) 494-5945stevenw@iii.org www.iii.org

INSURANCE INFORMATION INSTITUTE ON-LINE

The Future ofSocial Security’s

Disability and Medicare Trust Funds

$0

$50

$100

$150

$200

$250

$300

$350

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cha

nge

in T

rust

Fun

ds (b

illio

ns

Intermediate Low Cost High Cost

Social Security Disability Trust Fund: Forecast of Changes

Source: 2007 Annual Report of the Trustees of the OASDI Trust Funds, p. 36

Under High Cost Assumptions, the DI Trust Fund will be exhausted in Early 2016.

Under Intermediate Cost Assumptions, the DI Trust Fund will last until 2029.

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

$650

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cha

nge

in T

rust

Fun

ds (b

illio

ns

Intermediate Low Cost High Cost

Social Security Medicare “A” Trust Fund: Asset Forecast

Source: 2007 Annual Report of the Medicare Boards of Trustees, p. 52.

Under High Cost Assumptions, the HI Trust Fund will be exhausted in Late 2014.

Social Security: Selected Long-Range Forecast Assumptions

4.6%6.5%5.5%4.5%Unemployment rate

3.8%

4.4%

1.4%

1.70

High Cost (Bad)

2.4%2.8%1.8%Inflation (annual % change in CPI)

4.0%3.9%3.4%Growth rate of average wages in covered employment(annual % growth)

2.1%*1.7%2.0%Productivity growth(annual change, total U.S. economy)

2.092.002.30Total fertility rate(children per woman)

CurrentInter-mediate

Cost

Low Cost

(Good)

Item

*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

The Aging of the “Baby Boom” Generation

8.4

13.0

4.9

9.0

12.8

5.8

15.4

10.9 13

.3

6.4

17.6

13.9 15

.5

6.8

19.7

15.9

19.6

7.5

19.8

17.9

23.7

8.910

.1 12.2

0

5

10

15

20

25

65-69 70-74 75-84 85 and over

Mill

ions

of P

eopl

e

2005 2010 2015 2020 2025 2030

Source: U.S. Census Bureau, Projections of the Resident Population, 1999 to 2100, issued 1/13/2000.

Caregivers: The “Parent Support Ratio”

3.45.1

6.7

9.5 10.1 10.5 11.5

16.0

23.8

30.4

0

5

10

15

20

25

30

35

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Pare

nt S

uppo

rt R

atio

Source: U.S. Census Bureau, “65+ in the United States”, issued December 2005, p. 27.

“Parent Support Ratio”–the Number of people aged 85+ per 100 people aged 50-64.

At about 1:10 today, it will triple by 2050. Effect on a distracted workforce?

Source: US Bureau of Labor Statistics, 2004.

40.539.0

35.834.3

35.236.6

38.039.4

40.6 40.7

30

32

34

36

38

40

42

1962 1970 1975 1980 1985 1990 1995 2000 2005 2008Year

U.S. Workforce is Aging: Significant Implications for Workers Comp

Today the median age of US workers is about 41. Will Boomers who stay

in the workforce drive it higher?

An older and less healthy workforce?

Median Age of U.S. Worker