crunchboss wrote:
Insurance Company X is considering issuing a new policy to cover services required by elderly people who suffer from diseases that afflict the elderly. Premiums for the policy must be low enough to attract customers. Therefore, Company X is concerned that the income from the policies would not be sufficient to pay for the claims that would be made.
Which of the following strategies would be most likely to minimize Company X's losses on the policies?
A. Attracting middle-aged customers unlikely to submit claims for benefits for many years
B. Insuring only those individuals who did not suffer any serious diseases as children
C. Including a greater number of services in the policy than are included in other policies of lower cost
D. Insuring only those individuals who were rejected by other companies for similar policies
E. Insuring only those individuals who are wealthy enough to pay for the medical services
OG13 CR Q#53
Sir,
The Official answer for this Question is Option A, but after spending so much time I still find it Out of Scope because it deviates from the Sample Enough.
Questions Stem Defines the sample Space : elderly people
Now Option A completely deviates and talks about middle-aged customers
Middle aged Customers are not equal to Elderly People. middle-aged customers are absolutely different age group.
Dear
crunchboss,
I'm happy to respond.
Many official CR questions are written to have the feel of business in the real world. This particular question would make much more sense if you have had a little experience with ins & outs of the insurance industry.
First of all, it should be clear that (B), (C), (D), and (E) are all disastrous and would not lead to success, so in that sense, POE would lead to (A). I will not discuss those unless you have a question on them.
Choice (A) is not out of scope, for the simple reason that "old age" doesn't have a fixed and definitive beginning. When does a human being start to get old? At 40? at 50? at 65? at 75? You see, there is not just a single clear beginning. Presumably, most of these diseases would afflict folks in, say, their 70s or 80s or 90s. If the company could get folks in their 50s and 60s to buy it, then that would generate lots of income from a temporarily lower-risk group, and of course, eventually those people would enter the higher risk group and need the insurance. Of course, if the insurance company wants to sell the insurance to people in their 50s, it obviously is not going to market the policy as "insurance for the elderly," because no one in their 50s would be interested in that. The company would have to find a creative way to package it (e.g. "addressing health concerns as we age") in order to appeal to folks in their 50s. People in their 50s are aware that they are not as young as they used to be, and they are starting to notice some of the effects of aging, so they naturally would be interested in any insurance that addressed health concerns associated with aging, even though the diseases of the "elderly" would still be a few decades away.
I don't know how much you know about insurance, but the insurance industry does things of this sort all the time! The whole game about insurance is to get enough low risk people into the plan so that they can pay for the high risk folks, and toward that end, the insurance company usually has to market and sell the insurance to a lot of people who have little need for it. That's just the way the business works. Knowing about the way business situations are handled in the real world is very important for the CR:
https://magoosh.com/gmat/2014/gmat-criti ... knowledge/Does all this make sense?
Mike