Fatalities among Civil Infrastructure Workers: Variable Annuity with Guaranteed Minimum Death Benefits Approach

Abstract

Many studies are concerned with monitoring, evaluating, expanding, repairing, replacing, financing, or otherwise sustaining the civil infrastructure. Few studies address the ongoing and evolving financial problems associated with the workers responsible for developing civil infrastructure development. According to U.S. federal statistics, civil infrastructure activities are responsible for 22% of all work-related fatalities—the highest among all industries. In 2008, 429,000 nonfatal injuries and 1,005 fatal injuries were recorded on job sites. However, civil infrastructure workers still have some of the weakest coverage of health and retirement benefits. It is crucial to have a strong system that protects workers and their families in cases of work-related fatal and nonfatal injuries. This paper developed a financial model incorporating a variable annuity embedded with guaranteed minimum death benefits. The model is based on the principles of insurance pricing, option theory, Monte Carlo simulation, and actuarial science. A sensitivity analysis was conducted to explore the benefits of the utilized technique to employees and employers. If purchased at the age of 18, a reasonable average age for workers to start their career in the industry, coverage of $50,000 or $1,000,000 requires only annual payments of $73.47 and $1,469.50, respectively. The model provides numerical assessment for civil infrastructure fatalities by determining the risk charge equating cost and benefits for the insured workers. Furthermore, the same technique might be extended towards hedging strategies that provide income guarantees for unemployed workers.