Older Employees Lower Indemnity Costs for Workers’ Compensation

January 19, 2010

Workers 65 years old and older tend to have lower indemnity costs for workers’ compensation than do younger workers, largely because of their lower weekly wages.

That information from a new industry study could be good news for insurers as the nation’s workforce continues to age.

The new report by the National Council on Compensation Insurance (NCCI) found that the average weekly wage tends to increase with the age of the worker. However, it reaches a maximum when employees hit their early 50s and then declines gradually from ages 60–64. It then plummets, by as much as 30 percent, for workers aged 65 and older, possibly reflecting older workers taking part-time jobs or working a shortened work schedule after their retirement from full-time employment, according to the report.

The report also found that indemnity severity increases steadily with age through age group 45 to 49 and then stays relatively flat from ages 60 to 64, after which it declines by roughly 20 percent. Relative to all age groups, indemnity severity for workers aged 65 and older is roughly four percent less than it is for workers of all ages, according to NCCI.

Also, older workers file fewer claims, especially in the more hazardous manufacturing and construction-related industries and occupations. In contrast, claim frequency is higher for older workers in the leisure and hospitality industry and food preparation and service occupations as well as in sales.

The new NCCI study — Claims Characteristics of Workers Aged 65 and Older — examines workers’ compensation frequency and severity among workers aged 65 and older. Other key conclusions reached by NCCI:

  • Falls/slips/trips are by far the greatest cause of injury among older workers. Nearly half (47%) of workplace injury claims among workers aged 65 and older result from falls, slips, and trips. That is nearly twice the share as that for all workers. In contrast, claims involving strains (largely back- related) account for 38% of claims for all workers versus 23% for older workers. The study says these differences partly reflect a lower share of employment among older workers in industries and occupations requiring heavy lifting, such as construction, manufacturing, and installation and repair.
  • Medical severity is higher for older workers, although the differential between workers aged 65 and older and nearby age cohorts is small.

In a December 2006 study, NCCI examined how workers’ compensation frequency and severity vary by age of worker, however it focused on workers between ages 20 and 64. The industry rating group said that there has been renewed interest in the implications for workers compensation claims of persons working beyond age 64.

The workforce participation rate of those aged 65 and older has increased by nearly 50 percent since the late 1980s, while the rate for employees 55 to 64 has also increased from 55 percent to 65 percent, according to NCCI.

NCCI said further increases in the number of older workers are likely in coming years in light of recent financial and economic disruptions.

According to NCCI, several factors are behind the aging of the workforce, including changes in Social Security and other legislation; the shift toward defined contribution plans (and away from defined benefit plans); improved health of older workers and the decline in physically demanding jobs; and increases in life expectancy/rising cost pressures

In addition, the severity of the economic downturn in 2008–2009, along with the plunge in the stock market and home prices, are likely to accelerate the rise in participation rates among older workers in coming years, NCCI said.

Source: NCCI Report: Claims Characteristics of Workers Aged 65 and Older

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