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In Argonia the average rate drivers pay for car [#permalink]
 06 Jul 2008, 09:43
In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average.
The conclusion above would be properly drawn if it were also true that in Argonia
(A) the average accident insurance rate for all drivers rises whenever a substantial number of new drivers buy insurance
(B) the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average
(C) the lower the age of a driver, the higher the insurance rate paid by that driver
(D) insurance company profits would rise substantially if drivers were classified in terms of the actual number of miles they drive each year
(E) drivers who have caused insurance companies to pay costly claims generally pay insurance rates that are equal to or lower than those paid by other drivers
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Re: In Argonia the average rate drivers pay for car [#permalink]
06 Jul 2008, 10:15
IMO B.
If we is true, then conclusion is valid.
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Re: In Argonia the average rate drivers pay for car [#permalink]
06 Jul 2008, 10:22
IMO B
B. Only when the cost of insuring those drving fewer miles in less than those driving more miles will the ones driving fewer miles be subsidizing the other drivers.
You can make it a mathametical probelm.
Ones driving 50 miles pay = 100/month; and cost of insuring is 75/month but premium is 100/month
Ones driving > 50 miles pay = 100/month; and cost of insuring is 90/moth but premium is 100/moth
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Re: In Argonia the average rate drivers pay for car [#permalink]
06 Jul 2008, 18:45
It has to be B
the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average
Clearly this has to be true for the companies to make up for the losses from people who drive more than the annual average.
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Re: In Argonia the average rate drivers pay for car [#permalink]
16 Jul 2010, 06:59
icandy wrote: It has to be B
the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average
Clearly this has to be true for the companies to make up for the losses from people who drive more than the annual average. Can anyone explain? Quote: In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average I am confused because the passage clearly states that the cost of insurance does not depend on the distance a driver drives, then why would people who drive less subsidize(means pay for) drivers who drive more. Ok, lets assume insurance companies , think drivers who drive less are less risky so the cost of insurance is less, 1)how is this even possible when the argument clearly states Quote: the rate any individual driver pays never depends on the actual distance driven by that driver each year 2)Even if drivers, who drive less, pay less insurance, how will that correlation reduce, subsidize the cost of insurance for people who drive more, here there is no mention of an average insurance to assume that if X pays 10 but drives less, Y pays 10 but drives more, hence X is susidizing Y.
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Re: In Argonia the average rate drivers pay for car [#permalink]
22 Jul 2010, 16:09
BlueRobin wrote: icandy wrote: It has to be B
the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average
Clearly this has to be true for the companies to make up for the losses from people who drive more than the annual average. Can anyone explain? Quote: In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average I am confused because the passage clearly states that the cost of insurance does not depend on the distance a driver drives, then why would people who drive less subsidize(means pay for) drivers who drive more. Ok, lets assume insurance companies , think drivers who drive less are less risky so the cost of insurance is less, 1)how is this even possible when the argument clearly states Quote: the rate any individual driver pays never depends on the actual distance driven by that driver each year 2)Even if drivers, who drive less, pay less insurance, how will that correlation reduce, subsidize the cost of insurance for people who drive more, here there is no mention of an average insurance to assume that if X pays 10 but drives less, Y pays 10 but drives more, hence X is susidizing Y. the cost of insurance does not depend on the distance a driver drives...meaning that people who drive a lot and people who drive a little still pay the same amount (theoretically, since no other variable is mentioned). Statement B says it costs more to insure those who drive more, yet they are still paying the same per mileage rate. The only way the insurance company can lose money on these customers and remain profitable is if they are making it up somewhere else, in this case by charging those who drive less the same rate. The heavy drivers costs get to remain low because the infrequent drivers are paying much more than they would if the costs were based soley on mileage, meaning they are subsidizing part of the costs for the frequent drivers
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Re: In Argonia the average rate drivers pay for car [#permalink]
07 Oct 2010, 16:56
I'm in agreement, B seems reasonable.
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Re: In Argonia the average rate drivers pay for car
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07 Oct 2010, 16:56
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