A unit-linked micro insurance plan for Ugandan migrant workers (diaspora)

Abstract

The main objective of this dissertation project was to design a unit-linked micro insurance product for Ugandan migrant workers, which provide financial protection in the event death of the policyholder, surrender, permanent disability or survival of the policyholder to the end of the policy term along with a structured investment element. The product seeks to create a secure, efficient, and transparent way to remit funds, along with a structured investment element and essential life insurance protection for policy holders and their families in Uganda. The pricing and profit testing techniques was adopted in the design of the models for the calculation of appropriate premiums that would be paid by each eligible individual based on certain factors. The factors considered for this model were age, sex and policy term. Other factors include the demographic profile of the migrant workers, income levels, and specific financial goals and aspiration of the intending policyholder. The policy design considered majorly three decrements, that is, death, permanent disability and Surrender. Actuarial techniques were used and assumptions were taken for the interest rate of 17.41%, a risk discount rate of 18.41%, initial expense of 15% and renewal expense of 5% of premiums, initial commission of 25% and renewal commission of 3.5% of premium, a management charge of 2%, inflation rate of 3.3% and mortality and disability tables were the Kenyan tables deflated to 90%, Premiums were calculated based on the Actuarial principle of Equivalence, this was achieved by balancing equation of value to zero. This process helped to determine appropriate premium to be charged for a specific individual and profits testing involved determining Profits margins over various ages and policy terms which was done in Microsoft Excel for a 25-year-old both male and female. Generalization of the model was done in Python to be able to generate results for various ages across different policy terms. Sensitivity analysis was also done in Microsoft Excel to understand the relationship between premiums and profits margins across various ages and policy terms when each of the assumed variables change while holding others constant. The output show that for a male policyholder between 25 years to 45 yours old, the annual premiums generally ranged between UGX.1,317,042 and UGX.4,944,196 while profits margins ranged from 3.56% to 6.71% for the policy term of 5-10 years. The results also indicate that premiums generally increase with the age of inception of the policy while profits margins decline with increase in age of policy inception across all the policy terms. Overall, the product was more profitable for a 31-year-old male across all terms compared to other ages.