A pricing and profit-testing model for a unit-linked endowment assurance plan for construction workers in Uganda

Abstract

Construction is among the most hazardous occupations in Uganda, yet construction workers are almost entirely excluded from the formal life assurance market. The exclusion is structural rather than accidental: the workforce is predominantly casual and informally engaged, incomes are irregular and seasonal, and the occupational risk profile is materially heavier than the standard-lives basis on which conventional life products are priced. Insurers therefore either decline the risk, price it at a level that the market cannot absorb, or offer contracts whose Surrender terms make them unsuitable for workers whose earnings fluctuate. The result is a segment of the labour force that is simultaneously the most exposed to premature death and permanent total disability and the least protected against their financial consequences. This dissertation designs, prices and profit-tests a unit-linked endowment assurance planspecifically for Ugandan construction workers. The contract pays a benefit on death, onpermanent total disability, on voluntary surrender and on survival to the end of the policy term, and combines guaranteed protection with a transparent investment account so that a worker who neither dies nor is disabled still accumulates a capital sum. The design responds directly to the three features that make the segment difficult to serve: an occupationally loaded decrement basis, a graded premium-allocation ladder that recovers initial acquisition strain without destroying early surrender values, and a surrender benefit set at a level that is neither punitive nor a source of anti-selection. A three-decrement model death, permanent total disability and withdrawal was constructed from the Kenyan graduated assured-lives and disability tables, converted from independent to dependent rates under the assumption of a uniform distribution of decrements and loaded by a factor of 1.2 for occupational mortality and for occupational disability. Premiums were determined by the principle of equivalence and then set commercially so that each contract clears up a term-graded shareholder hurdle. Profitability was assessed through a unit-fund and non-unit-fund projection yielding a profit vector, a profit signature, a net present value profit margin, an internal rate of return and a discounted payback period. The model was implemented independently in Microsoft Excel and in Python, and the two implementations were reconciled to within UGX 395,895.22 to UGX 394,202.55 of the office premium. The results indicate that the product is commercially viable and affordable across the realistic entry-age range of 25 to 29 years and policy terms of five to 7years. For male lives the annual office premium of UGX 395,895.22 and 394,202.55 for female lives. With a monthly Premium of 32,850.21 for females and 32,991.2685 for males. Furthermore, sensitivity analysis was also carried out to determine the effect of changes in certain variables on the profit margin. In the results, the management charges, interest rates and management had the highest effect on premium and profit margin while the mortality had the lowest effect on profit margin.