NU Online News Service, May 29, 11:21 a.m.EDT

An aging population is impacting the underwriting and pricing ofproperty-casualty insurance products ranging from personal lines tocommercial coverages, experts told a meeting of the CasualtyActuarial Society.

The organization said that word came from a panel that addressedattendees at the Casualty Actuarial Society's Spring Meeting, May3-6, 2009.

According to the CAS report of their remarks, Martin Wolf,economist with the National Council on Compensation Insurance(NCCI), noted that the average age of workers 45 to 64 is expectedto peak in 2011 and discussed implications for workers'compensation insurance.

Mr. Wolf described how the changing demographics affect claimfrequency, indemnity severity and medical severity.

He explained that indemnity severity increases with the age ofworkers because older, more experienced workers are paid more,while medical severity--the cost per claim--increases with agebecause older workers take longer to heal from their injuries thanyounger workers.

Explaining the reasons for an increase in older workers, Mr.Wolf mentioned that people want to work longer.

This is due, he explained, to the recent financial crisis,prohibitions against mandatory retirement, the removal of theearnings cap on Social Security benefits, and less strenuous andsafer work environments.

Mr. Wolf also said older workers need to work longer because ofincreased life expectancy, changes in pension plans and increasedhealth care costs.

The industries and occupations that are the top choices of olderworkers are education and health services, followed by retailtrade, Mr. Wolf related.

He mentioned that statistics from the U.S. Bureau of LaborStatistics show that retail trade accounts for the largest share ofinjury and illness cases for older workers.

Paul Vendetti, consulting actuary for Pinnacle ActuarialResources Inc., discussed other lines of insurance and, taking apredictive modeling and pricing view, outlined the impact ofdemographic information, the catalysts for demographic changes, andthe potential for new and changing markets.

"Changing demographic information can lead to an increase ordecrease in frequency and severity, and there is a correlationbetween demographic information and expected losses," Mr. Vendettisaid.

The catalysts for demographic changes are the aging population,population shifts, economic events and changes in technology, headvised. "The key is that use of demographic information may allowrating systems to react before losses," Mr. Vendetti said.

He explained that demographic information can help identifypotential new markets and new coverages, analyze marketpenetration, and better manage catastrophes.

Mr. Vendetti said some of the demographic information that canbe used includes population characteristics, such as population bycounty from the U.S. Census Bureau, and annual estimates of housingunits for counties from the American Housing Survey, which providesinformation about household characteristics, types of dwellings,age of structures and vacancy rates.

Changes in demographics, he explained, can be gradual andlong-term, such as the aging population, or sudden and short-term,such as the shifting population densities of counties, which can becaused by economic events, reduced driving and catastrophes.

"Demographic changes mean products and rate plans must recognizetrends and adjust prior to recognizing losses," he said.

Using demographic information, said Mr. Vendetti, can helpidentify segments of a company's business that have beenprofitable, analyze market penetration to see if market share goalshave been achieved, and monitor the results of a rating plan bysetting market share goals and examining the results.

Panel moderator Brian Stoll, senior consultant for TowersPerrin, said that "for personal lines--auto and homeowners--the ageof your customers means different exposures. Factors are shiftingand they interplay with each other."

Mr. Stoll concluded that demographic shifts matter more forinsurance now because of the amount of data available in the"information age," the boom in predictive modeling, shrinkingprofit margins and financial stresses, as well as moresophisticated insurance buyers and smarter competitors. With theindustry responding, inaction means falling behind, he warned.