A model to design and price a Microlife insurance product for boda-boda motorists

Abstract

This project’s objective is designing a cheap life insurance product, that is to say, for as low as UGX 500 Per day, a bodaboda motorist gets life cover with a savings component, policy loan access, and a disability rider whilst the product hitting a target profit margin range of (-10% to 13%) Key assumptions made include; the premium is deducted from the bodaboda’s end of day earnings, interest rate, expenses, management charges, surrender rates, penalties, investment performance, unit growth rate, bid/offer spread, allocation rate, Kenyan mortality, the minimum guaranteed sum assured and a policy loan that is a multiple of a given year-end unit fund value. From the above, a profit testing technique was adopted in doing actuarial calculations both in MS excel and Python to yield projected fund values of a given bodaboda motorist of a particular age and projected profit margins that might be realized by the insurance carrier if they were to sell this product. Analysis of results shows that; • younger motorists are more profitable than older ones, • longer policy term lengths are always more profitable than shorter ones, • unit fund values increase with an increase in term length, • fund values are the same for motorists of the same age provided they chose the same policy term length. • Disability rider and policy loan incorporation adds more value to policyholders whilst maintaining overall profitability of an already benefit filled product.

To conclude, the researcher recommends; that the most sensitive assumptions i.e. allocation rate, extrapolated yield to maturity and initial expenses be regularly monitored, that the product be sold with a minimum term of 7 years and that the product be aggressively marketed as a long-term venture to young motorists.