As lawmakers debate funding to stop the spread of the Zika virus, insurers are determining the impact of an outbreak in the United States.
An epidemic would have the potential to put some insurers out of business, as Hurricane Andrew put many property insurers financially underwater in 1992, according to J. Doug Fullam, associate of the Society of Actuaries and pandemic modeling expert out of Boston. First, insurers must assess the risk.
"Nobody knows when next pandemic is going to happen, but we're sure it's going to happen in the future," Fullam said. "We need to think about risk."
Fullam is working with dozens of insurers and brokers on the financial effect of Zika, an epidemic in Brazil and parts of South America that currently threatens to expand into the United States.
As of May 18, the Centers for Disease Control and Prevention reported 544 travel-associated cases of Zika and 10 through sexual transmission in the United States. There's been one report of Guillain-Barré syndrome caused by the virus, a disorder that can cause paralysis.
Whether the United States experiences a large Zika outbreak this year largely depends on two factors, according to Fullam: climate, and how that will affect the size of the mosquito population; and how long it will take to produce a vaccine.
"Some insurers are extremely worried; some not worried at all," Fullam said.
Also, some insurers are extremely risk tolerant, while others are not, he said.
In the majority of the population, Zika causes mild illness, a rash or no symptoms.
Pregnant women and their newborns are most vulnerable to its effects. The disease is linked to microcephaly and other neurological disorders in babies.
In the United States, 157 cases of Zika have been reported in pregnant women, according to May 12 figures from the CDC.
Insurers are forced to relate these figures to the long-term costs of caring for children born with the disease.
Because Zika only recently emerged in the Americas, it's difficult for insurance companies to use a historical statistical analysis to assess the financial risk of an outbreak, Fullam said. Instead, actuaries such as Fullam look to epidemiological models of similar diseases such as dengue fever, which is also transmitted by mosquito, to better understand the potential spread and financial impact of the disease.
"Right now we see a lot of insurers using scenario testing to understand the risk and apply that to the book of business," Fullam said. "Can they handle a moderate or severe scenario? Then they make a decision on capital liability and reinsurance."
Reinsurance is a means of risk management, purchased by insurance companies to protect against extreme claims, Fullam said.
It's relatively rare in healthcare, according to Fullam. It became common for property insurers after Hurricane Andrew in 1992, when numerous companies went out of business due to the overwhelming number of claims.
Health insurers must look at their medical benefit ratio, Fullam said. For most, it's paying out 80 or 85 cents for every dollar taken in. If spending goes over that ratio, the insurer won't be able to keep up with the cost.
In a first line of defense, insurance companies can be proactive to prevent the spread of the disease, employing a nurse hotline to get information out to their policyholders on how to avoid being bitten by a mosquito, he said.
Zika is spread through the bite of a particular mosquito that thrives in tropical climates, and also through sexual transmission by an infected person. The virus has been rampant in Brazil and is in 60 countries, according to a May 25 World Health Organization report.
Of the 60, 46 countries are experiencing their first outbreak of Zika virus since 2015, WHO said.
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In February, President Obama requested $1.9 billion for research, treatment and prevention measures, but the Senate rejected that amount.
The Senate recently approved a $1.1 billion Zika funding bill that goes up against the House's $622 million in funding. A battle is expected to reconcile these figures as House Democrats say even the $1.1 billion isn't enough to address the crisis.
The CDC Foundation activated its U.S. Emergency Response Fund and Global Disaster Response Fund in February 2016 to further accelerate CDC's Zika response. The Bill & Melinda Gates Foundation is supporting these efforts through a $1.5 million grant.