Baby Boomers are not leaving the workforce quietly. A generation ago, a new college graduate had a reasonable expectation of obtaining a decent-paying job that provided comprehensive insurance coverage as part of the total compensation package – not so, in today’s downsized economy. It is not unusual for today’s educated 25-year old to be living with his/her parents, working an entry-level job with no benefits and, thanks to Health Care Reform, to be covered under a parent’s medical insurance. “Emerging adulthood” is increasingly considered a new life stage and the reduced job market is a major contributing factor.
In his recent book Shock of Gray, Ted Fishman outlines the economic, political and social consequences of the world’s aging population. Recently, he wrote
YOU MAY KNOW that the world’s population is aging — that the number of older people is expanding faster than the number of young — but you probably don’t realize how fast this is happening. Right now, the world is evenly divided between those under 28 and those over 28. By midcentury, the median age will have risen to 40. . . In short, the age mix of the world is turning upside down and at unprecedented rates.
In a developed nation such as the U.S., Fishman writes, the most expensive workers are full-time, professional older workers. Because their salaries have risen over time, they cost the most on the company payroll. They also cost the most to insure, and raise rates for all employees. Obviously, the need for quality affordable health care is paramount. Fishman recently wrote that “health care costs for workers who are between 50 and 65 are, on average, almost two times what they are for their peers in their 30s and 40s.” When the median age of workers climbs in the United States, so do employers’ insurance costs. Aging workers impact rates across a wide spectrum of insurance coverages: life, health, and workers’ compensation premiums all rise as age and salary increase and are used as rating factors. While property and other casualty rates are developed using other risk characteristics such as physical condition, geographic location and claims history, policyholder age is a major factor in rating personal automobile policies, one of the largest industry market segments.
Underwriters are challenged to develop innovative new rating models in response to this major demographic shift in order to keep insurance available and affordable. For instance, rather than rely on age and other traditional rating factors, industry may increasingly look at nontraditional rating methodologies such as California’s “pay as you drive” program and Nebraska’s permitted use of on-board sensors to determine auto insurance rates. As always, the need to retain a competitive market must be balanced against the need for fair and equitable cost sharing among all consumers.
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