Scribd
Upload
43 views

Statistics Question

Titan Insurance has introduced a new incentive scheme for its life insurance sales force that pays large bonuses based on total sums assured of policies sold. After 4 months, Titan sampled 30 salespeople to compare their average monthly output under the new vs old scheme. The mean outputs were £71,000 under the old scheme and £78,000 under the new scheme. A significance test was conducted to determine if the new scheme significantly increased outputs.

Uploaded by

ashishamitav123
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
43 views

Statistics Question

Titan Insurance has introduced a new incentive scheme for its life insurance sales force that pays large bonuses based on total sums assured of policies sold. After 4 months, Titan sampled 30 salespeople to compare their average monthly output under the new vs old scheme. The mean outputs were £71,000 under the old scheme and £78,000 under the new scheme. A significance test was conducted to determine if the new scheme significantly increased outputs.

Uploaded by

ashishamitav123
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

The Titan Insurance Company has just installed a new incentive payment scheme for its lift

policy sales force. It wants to have an early view of the success or failure of the new scheme.
Indications are that the sales force is selling more policies, but sales always vary in an
unpredictable pattern from month to month and it is not clear that the scheme has made a
significant difference.

Life Insurance companies typically measure the monthly output of a salesperson as the total
sum assured for the policies sold by that person during the month. For example, suppose
salesperson X has, in the month, sold seven policies for which the sums assured are £1000,
£2500, £3000, £5000, £10000, £35000. X's output for the month is the total of these sums
assured, £61,500. Titan's new scheme is that the sales force receives low regular salaries but
are paid large bonuses related to their output (i.e. to the total sum assured of policies sold by
them). The scheme is expensive for the company, but they are looking for sales increases
which will more than compensate for it. The agreement with the sales force is that if the
scheme does not at least break even for the company, it will be abandoned after six months.

The scheme has now been in operation for four months. It has settled down after fluctuations
in the first two months due to the changeover.

To test the effectiveness of the scheme, Titan have taken a random sample of 30 salespeople
measured their output in the penultimate month prior to changeover and then measured it in
the fourth month after the changeover (they have deliberately chosen months not too close to
the changeover). The outputs of the salespeople are shown in Table 1

Old Scheme New Scheme


SALESPERSON
(in thousands) (in thousands)
1 57 62
2 103 122
3 59 54
4 75 82
5 84 84
6 73 86
7 35 32
8 110 104
9 44 38
10 82 107
11 67 84
12 64 85
13 78 99
14 53 39
15 41 34
16 39 58
17 80 73
18 87 53
19 73 66
20 65 78
21 28 41
22 62 71
23 49 38
24 84 95
25 63 81
26 77 58
27 67 75
28 101 94
29 91 100
30 50 68

Questions
1. Find the mean of old scheme and new scheme column. 6 marks
2. Use the five percent significance test over the data to determine the p value to check
new scheme has significantly raised outputs? 5 marks
3. What conclusion does the test (p-value) lead to? 5 marks
4. Suppose it has been calculated that in order for Titan to break even, the average
output must increase by £5000 in the scheme compared to the old scheme. If this
figure is alternative hypothesis, what is:

        a) The probability of a type 1 error? 7 marks

        b) What is the p- value of the hypothesis test if we test for a difference of $5000? 7
marks

You might also like