SARS Underscores The Limits Of Insurance Underwriting
Severe acute respiratory syndrome (SARS), a previously unknown disease, presented a unique challenge to the world in general and the insurance industry in particular in the spring of 2003. It struck fear in the hearts of millions, crippled international travel for a time, and significantly disrupted the economies and daily activities in the areas affected.
While the economic impact to insurers was limited, SARS is likely not over and its ultimate effect is still uncertain.
The disease also served notice that the insurance industry has vulnerabilities that are difficult to manage: the inherent uncertainty of estimating mortality and morbidity, the limitations of underwriting, and the dangers associated with the concentration of risk.
In many ways, SARS offers a perspective on a previous era for individuals and insurers alike, one in which unpredictable infectious diseases were common and life was more uncertain.
Caused by a new strain of coronavirus, SARS represents the first major new infectious disease of the 21st century. The disease initially was reported in the Guangdong province of China in November 2002.
Swift international travel and ease of transmission combined to make its spread throughout the world a reality.
Fortunately, localized outbreaks have been limited by aggressive case identification, rapid isolation of symptomatic individuals, tracking of case contacts and quarantine of those persons exposed to infected patients.
Several factors make SARS problematic for insurance underwriting. The incubation period is short and the symptoms are nonspecific; many patients present with fever alone.
Nevertheless, there is a significant risk of respiratory failure resulting in a prolonged costly hospitalization or death (the case fatality ratio was 9.6%). Also, scarring of the lungs has taken place among individuals who recover. At this time, it is not certain if this damage is permanent.
For a disease that received so much press, only 774 deaths occurred worldwide as of July 2003. The mortality risk varies with certain factors. Age is very important; mortality risk is over 50% in those over age 65.