Pricing of Micro-insurance Product for Medical Insurance in Kenya Using Black-scholes Model

Abstract

Insurance is increasingly becoming more of a commodity, with customers often choosing their insurer purely on the basis of price. New products are being developed every day to meet the growing demands of the growing workforce as well as the evolving regulatory requirements. In this environment, insurers have to be innovative in developing, pricing and selling products to those working in the informal sectors. The informal sector was not much into insurance due to lack of knowledge. However, studies have shown that there is a positive nancial impact in providing such insurance services. The research is set out to model the risk in the market to get the premium that is a ordable in the market. The research broke the main objective into 3 distinct objectives as follows: (1) to determine the price for medical micro-insurance for the Jua Kali sector, (2) to evaluate the NHIF pricing model in Kenya using Black Scholes Model and (3) use the Greeks to determine the sustainability of the price. The research also focused on the NHIF Supa Cover, a micro-insurance cover focused on providing cover for the Jua Kali sector in Kenya. The data was analyzed using the Black-Scholes Model to get the optimum price for the Medical Scheme. Then I analyzed results using Black Scholes model and it showed that there is a relationship with the call option.