A model to design and price a health insurance plan for motorcycle riders

Abstract

Designing a life insurance product with a health cover for Boda Boda riders that achieves a profit margin greater than 8% is the aim of this study. The product is designed to cover the individual when they fall sick and need to go to the hospital for treatment. The product will only cover inpatient and outpatient claims excluding conditions like optical and dental. In this study we shall be designing an endowment assurance product. The key assumptions that were made in this study were interest rate, discount rate, management expenses and mortality. These assumptions are the ones that resulted into profit margin obtained. Profit testing techniques were used and using those computations we came up with appropriate profit. A unit linked model was used for this life assurance that means part of the premium was invested by the company to increase the value paid to the insured. Using the unallocated premium we calculated the profit margin expected from the policy. Profit testing was done using Microsoft excel software for an individual age and given term and using python we iterated for several terms and ages. The results have been stated in the study. A decrement table that came from the assumptions was used to calculate the extra costs that costs that were very critical in the profit calculation for the model. This table has been shown in the study and the formulas that led to the values in this table. Sensitivity analysis was also done to determine how sensitive the product is to changes in assumptions. This was done by changing the assumptions and seeing how they affected the profit margin. The sensitivity analysis tells us whether we should revise the product or if it is resilient. Lastly, conclusions and recommendations were made according to the analysis and results achieved from the work done. These conclusions tell us what we observed from the product designed and what should be improved from what is available in the market.