CHAPTER III

RESEARCH METHODOLOGY
 CHAPTER III
RESEARCH METHODOLOGY

Sr. No Details Page No.

3.1 The Title 99
3.2 Significance of Study 99
3.3 Objectives of Study 100
3.4 Hypotheses of Study 100
3.5 Scope of Study
3.5.1 Top Five Life Insurance Companies 101
3.5.2 Fund Options 102
3.6 Period of Study 103
3.7 Sample Design
3.7.1 Type of Universe 103
3.7.2 Sampling Unit 103
3.7.3 Sampling Frame 104
3.7.4 Sample Size 104
3.7.5 Sampling Technique 105
3.8 Data Collection
3.8.1 Primary Data 105
3.8.2 Secondary Data 108
3.9 Tools of Analysis 110
3.10 Definition of Key Words 110
3.11 Chapter Schema 113
3.12 Limitations of Study 115
3.1 THE TITLE
‘A Relative Study of Unit Linked Insurance Plans of Top Five Life Insurance
Companies in Selected Regions in Pune City’

3.2 SIGNIFICANCE OF STUDY

The insurance schemes are promoted by the companies with certain objectives to attract
the attention of the prospective investors. It includes children’s education, marriage,
wealth creation and retirement planning. Thus, it appears that all the schemes floated by
the companies are different. Customers tend to compare the policies and then choose
which one suits them. But are these schemes actually different?
Table 3.1 shows the NAV for different funds of ICICI Prudential Life Insurance Co
Ltd’s three different unit linked insurance plans.
Table 3.1
NAV of ICICI Prudential Life Insurance Co Ltd as on 12 June 2013
Fund option Smart Kid Life Time Plus Wealth Advantage
Balancer Fund II 27.82 27.82 27.82
Flexi Balanced Fund II 16.76 16.76 16.76
Flexi Growth II 16.08 16.08 16.08
Maximizer Fund II 40.39 40.39 40.39
Multiplier II 12.22 12.22 12.22
Preserver II 19.9704 19.9704 19.9704
RICH Fund II 13.63 13.63 13.63
Source: www.iciciprulife.com

From the above table, it can be observed that whether the investor chooses Smart Kid
policy or Life Time Plus or Wealth Advantage, the NAV is the same across all the
plans for a given fund option. (Appendix C – pg 308 – 322)

The current study focuses on this aspect and helps compare the returns of various fund
options of the company. This will help them to choose the company which gives higher
returns on a particular fund option as compared to similar option in another company.

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3.3 OBJECTIVES OF STUDY
The objectives of the study are:
1) To study the growth of top five life insurance companies in terms of:
a. Premium generation
b. Number of policies issued
c. Market share
2) To study various investment alternatives related to insurance available to the
investors of top five life insurance companies
3) To study the performance of various fund options and suggest which company is
giving better returns to its policyholders.
4) To study the awareness and usage of features unique to Unit Linked Insurance
Plans.
5) To analyze the extent to which Unit Linked Insurance Plans are effective as an
investment instrument among the investors.
6) To examine the fund option and the factors associated with ULIP investment.

3.4 HYPOTHESES OF STUDY

Following hypotheses are framed:

H1 = There is no significant association between the age of investors and their choice
of fund option.
H2 = There is no significant association between the investor’s gender and their choice
of fund option.
H3 = There is no significant association between the investors’ marital status and their
choice of fund option.
H4 = There is no significant association between the investors’ educational
qualification and their choice of fund option.
H5 = There is no significant association between the investors’ monthly income and
their choice of fund option.
H6 = There is no significant association between the investor’s occupation and their
choice of fund option.
H7 = There is no significant association between the investor’s age and their risk
appetite.

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H8 = There is no significant association between the gender of investor and their risk
appetite.
H9 = There is no significant association between the monthly income of investors and
their risk appetite.
H10 = There is no significant association between the age of investors and their
premium investment in ULIP.
H11 = There is no significant association between the monthly income of investors and
their premium investment in ULIP.
H12 = There is no significant association between the age of investor and their opinion
on return on investment.
H13 = There is no significant association between the gender of investor and their
opinion on return on investment.
H14 = There is no correlation between the factors influencing the investment decision
and their choice of fund option.
H15 = There is no concordance between the investors’ ranking of factors influencing
their investment decision.
H16 = There is no concordance between the investors ranking of objectives for
investing in ULIP.
H17 = There is no concordance between the investors’ ranking of factors influencing
their choice of ULIP.
H18 = There is no concordance between the investors’ ranking of insurance services.

3.5 SCOPE OF STUDY

3.5.1 Top Five Life Insurance Companies

The present study focuses on the ULIP of top five life insurance companies in India.
Hence it becomes necessary to decide the companies that are in the top five in the life
insurance segment.

On the basis of Premium received (including the Single premium and the renewal
premium) by various life insurance companies over the four years 2004-05 to 2007-08,
the top five life insurance companies are:

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 1) Life Insurance Corporation of India
2) ICICI Prudential Life Insurance Co. Ltd
3) Bajaj Allianz Life Insurance Co. Ltd
4) HDFC Standard Life Insurance Co. Ltd
5) SBI Life Insurance Co. Ltd

3.5.2 Fund Options

The performance of various fund options of these top five companies are to be
compared to suggest which company is giving better returns to its policyholders. The
funds are invested in equity, debt and money market instruments in varied proportions.
Moreover, the names of the fund options are also different in each company. Hence it is
important to prepare a statement specifying the comparable fund options of these top
five life insurance companies.

Following steps are involved to prepare a comparative statement:

1) List out the various fund options for ULIPs of the five insurance companies.
2) Study the composition of these funds on the basis of their investment in Equity,
Debt and Money Market Instruments.
3) Prepare a comparative statement so that we come to know which fund option of
one company is similar to which fund option of another company.
As per the detailed discussion of fund options in Appendix C, the comparative
statement is summarized below in table 3.2.
Table 3.2
Comparative Statement showing Fund Options across all Life Insurance
Companies
Category of NAME OF LIFE INSURANCE COMPANY
Funds LIC ICICI BAJAJ HDFC SBI LIFE
ALLIANZ LIFE
Equity Growth Blue Chip Blue Chip Blue Chip Equity Fund
Funds Fund Fund Fund Fund
Balanced Balanced Multi Cap Asset Balanced Balanced
Funds Fund Balanced Allocation Fund Fund
Fund Fund
Debt Funds Bond Fund Money Bond Fund Income Bond Fund
Market Fund
Fund
Source: Compiled by Researcher

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3.6 PERIOD OF STUDY
The facts and figures for the top five life insurance companies were analyzed for the
period from 2007-08 to 2011-12 i.e. five years. The Net Asset Value for the purpose of
computing the CAGR for the various fund options was taken from 2005 onwards.

3.7 SAMPLE DESIGN

3.7.1 Type of Universe

Life Insurance is a popular investment avenue among investors which provides
protection against uncertainties. The number of policies issued in the state of
Maharashtra during 2010-11 is shown in table 3.3.

Table 3.3
Number of Life Insurance Policies issued in Maharashtra for the year 2010-11
Quarter Private Life Life Insurance Total
Insurance Corporation of
Companies India
April – June 2010 233533 771397 1004930
July – September 2010 307521 820411 1127932
October – December 2010 336324 905163 1241487
January – March 2011 437081 1781434 2218515
Total 1314459 4278405 5592864
Source: Compiled from Quarterly Supplements of IRDA of the year 2010-11

Thus the universe for this study is a FINITE UNIVERSE at 5592864.

3.7.2 Sampling Unit

On account of budgetary constraints the researcher limited the study to Pune City in the
state of Maharashtra.

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3.7.3 Sampling Frame
It contains the names of all items of a finite universe. Since the details of life insurance
policies issued to various individuals is of a confidential nature, the companies refused
to provide such data. Hence source list could not be prepared.

3.7.4 Sample Size

From the quarterly supplements issued by IRDA the number of policies sold in
Maharashtra by different life insurance companies is taken and shown in table 3.4.

Table 3.4
Number of Policies sold in Maharashtra during the year 2010-11
Quarter April – July – October – January Total
June September December – March
2010 2010 2010 2011
ICICI Prudential Life
Insurance Co. Ltd 43878 45147 116 134870 224011
Bajaj Allianz
Insurance Co. Ltd 20843 8747 21983 29945 81518
HDFC Standard Life
Insurance Co. Ltd 23002 34275 129457 57680 244414
SBI Life Insurance
Co. Ltd 9568 27121 18462 18462 73613
Others 136242 192231 166306 196124 690903
Total (Private) 233533 307521 336324 437081 1314459
Life Insurance
Corporation of India 771397 820411 905163 1781434 4278405
Total Industry 1004930 1127932 1241487 2218515 5592864
Source: Compiled from Quarterly Supplements of IRDA of the year 2010-11

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The formula used for determining the sample size is: 138

By applying the above formula for 95% confidence level with 5% margin of error the
sample size for a population of 55.92 lakhs is 384.

3.7.5 Sampling Technique

Non-Probability Convenience Sampling was used to approach the investors who had
invested in unit linked insurance plans.

3.8 DATA COLLECTION

3.8.1 Primary Data

For the purpose of this study primary data was collected through two sources:
1. Personal Interview
2. Questionnaire
1. Personal Interview
A personal interview was conducted with Branch Managers of various life insurance
companies. Under this, 10 questions with emphasis on life insurance and ULIP were
asked and the responses were written by the researcher. These responses were then
made into soft copy and mailed to them. Once acceptance was received from them, then
these responses were marked as final.

138
Krejcie & Morgan (1970). ‘Determining Sample Size for Research Activities’.
Educational and Psychological Measurement, #30, pp. 607 – 610. Retrieved from
http://research-advisors.com/tools/SampleSize.html on 5 April 2012

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The persons interviewed were –
1. Mr. Mandar Vaidya, Additional Chief Branch Manager, Bajaj Allianz Life
Insurance Co. Ltd
2. Mr. Somen Roy, Circle Head, HDFC Standard Life Insurance Company Ltd.
3. Mr. Sachin Wakade, Branch Head – DSF, Aviva Life Insurance Company India
Ltd
4. Mr. Sudhakar Kulkarni, Certified Financial Planner

2. Questionnaire:
To understand the investors’ awareness about Unit Linked Insurance Plans, a structured
questionnaire consisting of 35 questions was prepared. The objective of this
questionnaire was to understand the investors’ financial capacity, his preferred
investment instruments, the linked insurance plan procured by him, his liking/disliking
for the same and his understanding of the ULIP held by him as a whole.
i. Pilot Study:
A pilot study was conducted wherein 22 respondents were approached. Based
on the interaction and responses received from them, the questionnaire was
revised and the finalized version had 43 questions (Refer Appendix H). For
example, the revised questionnaire included questions on source of acquiring
ULIP, factors influencing them in choosing ULIP.

ii. Reliability Analysis:

Reliability analysis allows one to study the properties of measurement scales

and the items that make them up. The Reliability analysis procedure calculates a
number of commonly used measures of scale reliability and also provides
information about the relationships between individual items in the scale.
Intraclass correlation coefficients can be used to compute intra-rater reliability
estimates. The reliability statistics has been used for testing reliability (internal
consistency) of the questionnaires in the pilot study. The following section
shows the result test for a sample of 495 respondents. The outcome of the
reliability tests resulted in an overall Cronbach Alpha value of 0.8533 with
standardized item alpha of 0.8534, which is theoretically large enough to accept
the internal consistency of the instrument used.

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 Table 3.5
Reliability Analysis – Scale (Alpha)
N of Cases = 495.0
Statistics for Mean Variance Standard N of
Scale Deviation Variable
3.9192 1.4793 1.2163 3
Item Means Mean Minimum Maximum Range Max/Min Variance
1.3064 1.2828 1.3293 .0465 1.0362 .0005
Item Mean Minimum Maximum Range Max/Min Variance
Variances
.2126 .2032 .2213 .0181 1.0889 .0001

Table 3.6
Analysis of Variance
SV Sum of Sq. DF Mean F Prob.
Square
Between people 243.5892 494 .4931
Within People 72.0000 990 .0727
Between Measures .5347 2 .2673 3.6959 .0252
Residual 71.4653 988 .0723
Total 315.5892 1484 .2127
Grand Mean 1.3064

Table 3.7
Intraclass Correlation Coefficients
Two-Way Mixed Effects Model (Consistency Definition)
Measure ICC 95% Confidence Interval
Value
Lower Bound Upper Bound F-Value Sig.
Single Rater .6597 .6184 .6988 6.8170 .0001
Average Raters* .8533 .8294 .8744 6.8170 .0001

Degree of freedom for F-tests are 494 and 988. Test Value = 0
*Assumes absence of People*Rater Interaction
Reliability Coefficients 3 items
Chronbach Alpha = .8533 Standardized item alpha = .8534

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 iii. Collection of data:
1000 investors were approached / contacted for this survey. However, 183 did
not return the questionnaires, while 17 were rejected on account of incomplete
data. Hence, 800 questionnaires were found to be complete in all respects. Out
of these, 239 investors did not have a ULIP of top five life insurance companies.
Hence, only 561 responses were considered for final analysis.

iv. Selected Regions:

The respondents were selected from selected areas in Pune city as shown in
table 3.8.
Table 3.8
Area-wise Classification of Respondents
Area No. of respondents
Aundh 105
PCMC 100
Karvenagar 40
Shivaji Nagar 130
Senapati Bapat Road 75
Law College Road 85
Kothrud 85
Swargate 150
Wakad 30
TOTAL 800

3.8.2 Secondary Data

The sources of secondary data are quite wide. Various medium were used to gather the
information, each of them were used for specific purpose which is discussed in brief as
follows:

1. Reference Books:
These were used with a view to understand certain theoretical concepts, failing
which one cannot go ahead.

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2. Web-Sites :
In today’s modern world the use of computers and internet is inevitable. Internet in
the recent past has become a primary source of information of any type. It is not
only a quick but also very economical source of information. The data which is
collected from internet is very recent and current of practical importance. The web-
sites were used as a source of current information for the project. Following is the
description of the sources used to collect the data required:

i. Net Asset Value:

NAV data had been taken from the websites of the life insurance companies
www.licindia.com
www.icicipurlife.com
www.hdfclife..com
www.bajajallianz.com
www.sbilife.com
www.moneycontrol.com

ii. Data for life insurance industry:

The details of various life insurance companies in the industry along with
premium collection, no. of policies, market share were sourced from Annual
Reports of Insurance Regulatory and Development Authority of India, its
quarterly supplements and monthly journals www.irda.org . Besides this,
following websites were also used to gather information for the insurance
industry.
www.swissre.org
www.ssrn.org
www.rbi.org
www.mospi.gov.in

3. News Papers :
Certain other documents and material like the Newspapers, which are current and
constant sources of information, are also used in this project so that more
information can be put in.

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 a. The Times of India
b. The Indian Express
c. Economic Times

4. Journals and Magazines:

Various journals were accessed through the Ebsco and JGate database for the
purpose of literature review. Apart from these various magazines devoted to issue
related to insurance like Insurance Chronicle, Insurance Today etc. have also been
used to supplement the data and information required for the study.

3.9 TOOLS OF ANALYSIS

The collected data was analysed using statistical tools based on the objectives of the
study. The following are the statistical tools used to draw the inferences:
1. Method of Least Squares.
2. Compounded Annual Growth Rate (CAGR).
3. Chi-Square Test
4. Spearman’s Rank Correlation
5. Kendall’s W Statistics
6. Risk Adjusted Return Performance Measures:
a. Standard deviation
b. Coefficient of Variation
c. Pearson’s Correlation Coefficient
d. Beta
e. Sharpe Measure
f. Treynor Measure
g. Jensen’s Alpha

3.10 DEFINITION OF KEY WORDS

1. Net Asset Value (NAV):

NAV is the value of each unit of the fund on a given day. The NAV of each fund is
displayed on the website of the respective insurers.

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The formula for computation of NAV applicable w. e. f. August 18, 2011 is:

𝑴𝒂𝒓𝒌𝒆𝒕 𝑽𝒂𝒍𝒖𝒆 𝒐𝒇 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕𝒔 + 𝑽𝒂𝒍𝒖𝒆 𝒐𝒇 𝒂𝒏𝒚 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 − 𝑽𝒂𝒍𝒖𝒆 𝒐𝒇 𝒂𝒏𝒚 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
𝒂𝒏𝒅 𝑷𝒓𝒐𝒗𝒊𝒔𝒊𝒐𝒏𝒔, 𝒊𝒇 𝒂𝒏𝒚
𝑵𝒐. 𝒐𝒇 𝑼𝒏𝒊𝒕𝒔 𝒆𝒙𝒊𝒔𝒕𝒊𝒏𝒈 𝒂𝒕 𝒗𝒂𝒍𝒖𝒂𝒕𝒊𝒐𝒏 𝒅𝒂𝒕𝒂

Note: No. Of units at valuation date should be taken before creation or redemption of
any units.

2. Method of Least Square:

The time series of NAV data was analyzed through the Method of Least Squares. The
trend line is given by:
𝒚 = 𝒂 + 𝒃𝒙

Where the coefficients ‘a’ and ‘b’ are found by solving the following two equations:
𝑵𝒂 + 𝒃𝚺𝒙 = 𝚺𝒚
𝒂𝚺𝒙 + 𝒃𝚺𝒙𝟐 = 𝚺𝒙𝒚
Where, N = no. of years, x = year and y = Net Asset Value

3. Compounded Annual Growth Rate:

CAGR is a business and investing specific term for the smoothed annualized gain of an
investment over a given time period. CAGR is not an accounting term, but remains
widely used, particularly in growth industries or to compare the growth rates of two
investments because CAGR dampens the effect of volatility of periodic returns that can
render arithmetic means irrelevant. CAGR is often used to describe the growth over a
period of time of some element of the business. For example, revenue, units delivered
registered users, etc. 139 The compound annual growth rate is calculated by taking into
consideration the following formula

𝟏
𝑬𝒏𝒅𝒊𝒏𝒈 𝑽𝒂𝒍𝒖𝒆 𝒏
𝑪𝑨𝑮𝑹 = � � − 𝟏
𝑩𝒆𝒈𝒊𝒏𝒏𝒊𝒏𝒈 𝑽𝒂𝒍𝒖𝒆
139
Compound Annual Growth Rate. Retrieved from
http://en.wikipedia.org/wiki/Compound_annual_growth_rate on 24 May 2013

111
Thus, CAGR isn’t the actual return in reality. It’s an imaginary number that describes
the rate at which an investment would have grown if it grew at a steady rate. It is a way
to smooth out the returns. 140

4. Spearman’s Coefficient of Correlation:

Spearman’s Coefficient of Correlation represented by the symbol ‘R’ is calculated as
follows:
𝟔𝜮𝒅²
𝑹=𝟏−
𝒏(𝒏² − 𝟏)
Where,
‘d’ represents the differences in ranks
‘n’ represents the number of observations

5. Chi-square Test (χ²): 141

Chi-square test is an important test amongst the several tests of significance developed
by statisticians. Chi-square, symbolically written as χ² (Pronounced as Ki-square), is a
statistical measure used in the context of sampling analysis for comparing a variance to
a theoretical variance. As a non-parametric test, it can be used to determine if
categorical data shows dependency or the two classifications are independent. It can
also be used to make comparisons between theoretical populations and actual data
when categories are used. Thus, chi-square test is applicable in large number of
problems. The test is, in fact, a technique through the use of which it is possible for all
researchers to
i. Test the goodness of fit
ii. Test the significance of association between two attributes
iii. Test the homogeneity or the significance of population variance.

140
Compound Annual Growth Rate. Retrieved from
http://www.investopedia.com/terms/c/cagr.asp on 24 May 2013

141
Kothari, C. R. (2008). Research Methodology: Methods and Techniques. (2nd ed.).
New Delhi: New Age International (P) Limited. P. 233

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6. Kendall’s W Statistics:
Kendall’s W Statistics is a nonparametric test of the hypothesis that tests whether
several related samples are from the same population which measures the agreement of
raters. Each case is a judge or rater and each variable is an item or person being judged.
For each variable, the sum of ranks is computed. Kendall's W ranges between 0 (no
agreement) and 1 (complete agreement).

7. Risk Adjusted Return Performance Measures:

Standard deviation
Σp² Σp
� − ( )²
N 𝑁

Coefficient of Variation 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐷𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 𝑜𝑓𝑓𝑢𝑛𝑑 𝑟𝑒𝑡𝑢𝑟𝑛

𝑀𝑒𝑎𝑛 𝑟𝑒𝑡𝑢𝑟𝑛
Pearson’s Correlation Coefficient 𝐶𝑜𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 (𝑝, 𝑚)
𝜎𝑝. 𝜎𝑚
Beta 𝐶𝑜𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒𝑝𝑚
𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒𝑚
Treynor Measure 𝑅𝑝 − 𝑅𝑓
𝛽
Sharpe Measure 𝑅𝑝 − 𝑅𝑓
𝜎𝑝
Expected Return – As per Capital Asset 𝐸𝑅𝑝 = 𝑅𝑓 + 𝛽(𝑅𝑚 − 𝑅𝑓)
Pricing Model
Jensen’s Alpha 𝑅𝑝 − [𝑅𝑓 + 𝛽(𝑅𝑚 − 𝑅𝑓)]

3.11 CHAPTER SCHEMA

The study has been organized into seven chapters

Chapter 1 – Introduction
This chapter is introductory in nature and explains overview of the insurance sector. It
gives the idea about life insurance, concept of ULIP and the current scenario. It is
discussed through 24 sections in all.

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Chapter 2 – Review of Literature
It is divided into four sections. The first section pertains to the review of existing
literature on the subject. 95 research papers/articles were studied to understand different
perspectives on life insurance adopted by different researchers. The second section
discusses the statement of problem followed by research gap analysis. The last section
focuses on hypotheses development.

Chapter 3 – Research Methodology

This chapter explains the methodology adopted for the study. It sets the objectives for
the study. It explains the significance of study, sample design, data collection, tools of
analysis, etc.

Chapter 4 – Profile of Life Insurance Industry and Top Five Life Insurance
Companies
This chapter is discussed through 8 sections. It includes identifying the top five life
insurance companies in India. The profile of each of these companies was further
discussed through 7 sub-sections. The last section summarizes the results of the
companies.

Chapter 5 – Analysis and Interpretation of data

The fifth chapter is the core chapter of the study. This chapter is divided into 16
sections. The first 9 sections deal with performance evaluation of fund options. The
next section is devoted to the personal interview conducted. Sections 11 to 15 are
devoted to analysis of responses from 561 investors. Last section is devoted to testing
of hypotheses.

Chapter 6 – Risk Adjusted Return Analysis

This chapter is divided into 4 sections. The first two sections give the conceptual
background and methodology adopted for analysis. The next section presents the risk
adjusted returns for the top five life insurance companies. The last section summarises
the results.

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Chapter 7 – Findings, Conclusion and Recommendations
This chapter presents the various research findings and concludes the study. Lastly, it
presents recommendations based on the study.

Chapter 8 – Scope for Further Research

The last chapter discusses the scope for further research.

3.12 LIMITATIONS OF STUDY

The limitations of the study are:

1. The analysis of fund options is based on historical data and thus indicates the past
performance, which may not always be indicative of the future performance.
2. Statistics about the unit linked insurance plans relating to Pune are not available. So
all India statistics are considered.
3. The study did not capture the volatility of the stock market. The state of capital
market has a significant influence on the buying pattern of ULIP.
4. NAV data was analysed for 5/6 years. However, analysis for more than 10 years
would have been more beneficial.

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