A pricing and profit testing model for a unit-linked endowment microinsurance plan for factory and industrial workers

Abstract

This study develops, prices, and profit-tests a unit-linked endowment micro insurance product for factory and industrial workers in Uganda. A formal-sector workforce whose exposure to machinery, hazardous materials, and shift-based labour leaves it carrying meaningful occupational risk. The plan combines a death, disability and survival benefit with an investment-linked endowment component, priced using the principle of equivalence and assessed for insurer profitability through unit-fund and non-unit-fund profit testing. Assumptions were calibrated to Uganda's regulatory and macroeconomic environment, including Kenyan mortality and disability tables adjusted upward for occupational risk, a 2026 Government of Uganda Treasury bond-linked discount rate, and Uganda Bureau of Statistics inflation data. Models were built first in Microsoft Excel for a 27-year-old male and female policyholder on a 5-year term, then generalized in Python 3.12.4 across ages 20 to 51 and terms of 5, 6, and 7 years, with a sum assured of UGX 2,000,000. For the baseline profile, the model produced an annual premium of UGX 278,558.90 and a 7.94% profit margin for the male life, and UGX 277,828.51 and 8.09% for the female life. Across the full range of ages and terms, annual premiums ran from roughly UGX 147,300 to UGX 285,000, and profit margins from about 7% to 19%, rising with policy term and falling with entry age, with female policyholders consistently posting marginally higher margins than males. Sensitivity testing identified renewal commission, the risk discount rate, and initial expenses as the strongest drivers of profitability, with the product remaining profitable under every scenario tested. The study concludes that an actuarially sound, affordable micro insurance product for this segment is achievable, and recommends mobile-money premium collection, employer-facilitated payroll deduction, and closer collaboration with the Insurance Regulatory Authority of Uganda to support its rollout.