Pricing and profit testing unit linked endowment micro insurance plan for long distance truck drivers

Abstract

This study designed a unit-linked endowment microinsurance product for long-distance truck drivers in Uganda, a high-risk group often excluded from affordable insurance. The product provides financial protection against death, permanent disability, surrender, or survival to the policy term. Using actuarial principles, assumptions were set based on local and regional data, and models were developed in Excel and Python 3.12.4. Pricing was based on the principle of equivalence, while profit testing assessed sustainability across ages 25–64 and policy terms of 10–12 years. Results showed annual premiums between UGX 853,890.72and UGX 1,240,134.67 with profit margins of 11.25%–19.56%. Sensitivity analysis indicated that profitability is most affected by discount rates, expenses, and commissions. The study concludes that a sustainable and affordable microinsurance product for truck drivers is feasible. It recommends delivery through mobile money platforms and fuel station partnerships to enhance access and premium collection. The proposed policy included three risks: death, permanent disability, and surrender. To design it, actuarial assumptions were made, and pricing and profit testing models were built using Microsoft Excel and Python 3.11. Premiums were calculated using the principle of equivalence, while profits were tested across different ages and policy terms. The results showed that the most suitable policy term is 10–12 years, aimed at men aged 25 to 64 years. Annual premiums ranged from UGX 87,809.75 to UGX 1,250,134.17, with profit margins between 11.25% and 19.56%. Premiums increased with age, while profit margins declined for older drivers, reflecting their higher risk. A sensitivity analysis found that profitability was most affected by the discount rate, expenses, and commission rates, while inflation had little effect. The main challenge identified was how to deliver the product and collect premiums efficiently from drivers. To solve this, the study recommends partnerships with mobile money platforms such as MTN MoMo and Airtel Money, which would allow drivers to make payments easily, reliably, and affordably while on the move.