What is the ‘Morbidity Rate’
The morbidity rate is the frequency or proportion with which a disease appears in a population. Morbidity rates are used in actuarial professions, such as health insurance, life insurance and long-term care insurance to determine the premiums to charge to customers. Morbidity rates help insurers predict the likelihood that an insured will contract or develop any number of specified diseases and thus develop competitively-priced insurance policies in its regulated industry. Morbidity rate should not be confused with mortality rate, which is the frequency of death in a given population.
BREAKING DOWN ‘Morbidity Rate’
The Centers for Disease Control and Prevention (CDC) defines morbidity as “any departure, subjective or objective, from a state of physiological or psychological well-being.” In practical language, morbidity comprises “disease, injury, and disability.” Morbidity rates refer to either incidence or prevalence. The proportion of initial cases of a disease to a population is an incidence rate, while the proportion of initial and existing cases of disease to a population is known as the prevalence rate. For example, 50,000 new cases of heart disease developed in a city with a population of 5 million in one year; the (morbidity) incidence rate, then, is 1%. If 250,000 people already suffer from heart disease in the city, the prevalence rate increases from 5% to 6%.
The ability to accurately estimate morbidity rates for various diseases is important for insurers to set aside sufficient amount of money to cover benefits and claims for their customers. Morbidity rate data is also used in part to establish prices for the premiums that the insurance companies charge. Other main factors in pricing premiums are mortality rates, operating expenses, investment returns and regulations. As an example, Prudential Financial, Inc. bases its pricing of group insurance products on expected payout of benefits using its assumptions for mortality, morbidity, interest, expenses and persistence.