Pro-Tect Insurance Company has recently been paying out more on car-th

The question stem itself asks us to evaluate Pro-Tect's plan, so let's make sure that we're 100% clear about the language of that plan. The plan is to "offer a discount to holders of car-theft policies if their cars have anti-theft devices or alarm systems." The goal of this plan is "to reduce [Pro-Tect's] annual payouts [on car theft claims]."

"Cars with special anti-theft devices or alarm systems are much less likely to be stolen than are other cars." Pro-Tect wants its policy-holders to install anti-theft devices or alarm systems (if they don't already have such devices/systems) in order to decrease the likelihood that those policy-holders will have their cars stolen. This, in turn, should reduce car theft claims and, thus, reduce Pro-Tect's annual payouts on car theft claims.

So, which of the answer choices provides the strongest indication that the plan is likely to achieve its goal of reducing Pro-Tect's annual payouts?


This statement suggests that the effectiveness of car alarms actually DECREASES as the number of cars equipped with such alarms increases. Thus, even if the discount encourages some of Pro-Tect's customers to install car alarms, the security benefit of installing such an alarm might decrease with each successive installation. This statement doesn't suggest that Pro-Tect's plan will fail, but it certainly doesn't provide a strong indication that the plan will succeed. Eliminate (A).


We are not interested in comparing Pro-Tect to other insurance companies. We only want to know whether the discount is likely to reduce annual payments on car theft claims. Choice (B) does not provide a strong indication either way and can be eliminated.


In order for Pro-Tect's plan to work, at least some of the policy-holders who currently do not have an anti-theft device or alarm system must decide to install such a device or system because of the discount. If the cost of anti-theft devices is very high relative to the size of the discount, the discount might not be enough to encourage policy-holders to buy such devices. Choice (C) tells us that the devices would "pay for themselves" after only a year or two and, thus, that customers who install such devices will save money each successive year. The fact that customers would have a financial incentive to install such devices provides a strong indication that the plan will achieve its goal. Keep choice (C).


We want to know whether the proposed discount is likely to reduce annual payments on car theft claims, and this has nothing to do with the cost of insurance premiums. Choice (D) is irrelevant and can be eliminated.


The proposed plan has nothing to do with car models. Choice (E) does not suggest whether the plan will achieve its goal, so (E) can be eliminated.

Choice (C) is the best answer.
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I wouldn't say so. "a few cars" is a very vague term. What if market share of Pro-tect is only 1% of all cars? Then even if all clients of Pro-tect get anti theft alarms, they should be "a few" and hence the anti-theft device should be effective.

GMATNinja VeritasPrepKarishma



Do you agree that (A) is a correct weakener choice for the plan to fail ?
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Official Answer:

Evaluation of a Plan

Situation An insurance company is paying more money on car-theft claims than anticipated. To reduce these payments, the company is planning to offer discounts to customers whose cars have antitheft devices or alarm systems, because such cars are less likely to be stolen.

Reasoning What piece of information would indicate that the plan is likely to succeed? Pro-Tect wishes to reduce its annual payouts, and one way for that to happen is for fewer cars insured by Pro-Tect to be stolen. To help accomplish this, Pro-Tect is offering discounts to policyholders whose cars are so equipped, because cars equipped with antitheft devices or alarm systems are less likely to be stolen than are cars without such devices. What would interfere with the success of Pro-Tect's plan? Car owners would probably resist investing in antitheft devices or alarm systems if the cost of such systems is higher than the discount they will receive. So if Pro-Tect sets the discount at a level that makes installing antitheft devices seem like a bargain to car owners, the plan will most likely succeed.

Option C is Correct. This statement suggests that Pro-Tect's plan will provide an effective incentive for car owners to install antitheft devices; this statement therefore properly identifies information that indicates the plan is likely to achieve its goal.

Why are the incorrect answers "incorrect":-

Option A is incorrect: Pro-Tect's plan is designed to increase the number of cars equipped with car alarms. If having more cars equipped with car alarms reduces those alarms' effectivity in preventing thefts, then Pro-Tect's plan is unlikely to achieve its goal.

Option B is incorrect: Pro-Tect's claims in relation to those of other insurance companies are not relevant to whether Pro-Tect's plan to reduce its own car-theft claims will achieve its goal.

Option D is incorrect: Because Pro-Tect's plan does not involve raising the premiums it charges, restrictions on its ability to do so are irrelevant to whether that plan will achieve its goal.

Option E is incorrect: Pro-Tect's plan does not distinguish among different models of car, so this statement indicates nothing about whether the proposed plan will succeed.
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GMATNinja IanStewart AnishPassi MartyTargetTestPrep - i chose C but i did have a follow up on C that is bothering me

All option C does is frankly say -- the plan will have a lot of customer buy-in / customers will be excited to hear about this deal / customers will most likely buy in

But that doesn't mean the plan itself will achieve its goal

The eventual goal of the plan is to reduce annual payouts. specifically

Where is the proof that just because many customers will buy into this policy -- the goal (of reducing annual payout) will come to fruition ?

I was looking for something that strengthen this bit in pink specifically


Isn't strengthening the pink 'a better way' to strengthen the argument ?

C just says -- many people will be excited to buy into our new updated insurance policy we are offering

But if the pink isnt necessarily true -- well then the entire argument collapses (even if many people buy in.)

Thoughts ?

You're right to focus on the goal of the plan, but what you've highlighted in pink is a premise of the argument. It doesn't need to be strengthened, because premises are automatically true. We know if cars have antitheft devices, they're much less likely to be stolen. So if insured cars have these devices, they won't be stolen as often, and presumably the insurer will pay out less in insurance. The only reason the plan could fail is if drivers don't install the car alarms. When we learn from C that the discount will make car alarms affordable to insured drivers, that gives us more reason to think drivers will buy them, so C is a helpful answer here.

Hi IanStewart - given the premise in pink in 100 % definitive -- Can I infer

Even if 1 customer ONLY buys into this updated plan (Pro-Tect Insurance is offering) - Just one customer -- The goal (of reduce annual payouts) WILL DEFINITELY BE achieved ?

Given the pink CANNOT be questioned -- if 1 customer ONLY buys into this updated plan -- Pro-Tect insurance will pay reduced annual payouts. why do I say - just 1 customer only ?

Well -

Seems a bit strange of an inference.

I don't follow how you've drawn your inference, but we don't need the right answer here to tell us that the goal "will definitely be achieved". The question asks us to pick an answer that makes the company's plan "likely to achieve its goal" ('likely', not 'definitely').

If only one person buys the car alarm, that's not likely to make a difference to the insurer (unless the new alarm successfully thwarts a car theft, but that presumably doesn't happen too often, unless car theft is really common). But if, with no alarm, a driver has their car stolen 1/1000 of the time in a year (i.e. with probability 1/1000) and with the alarm their car is never stolen, then if the insurer persuades 1000 drivers to install the alarm, the insurer could expect to make one less payout for car theft each year. There will naturally be variance because of randomness, so the insurer can't be sure of anything, but the "expected value" (a math concept that you use constantly in an MBA, and which I imagine most MBA applicants have seen before, though it's not tested on the GMAT) of the car insurer's annual payout goes down for every driver who installs the alarm, so in that sense, even one driver makes a difference.

But you really don't need to think about any of that to answer this question.

Conclusion - Consequently Pro-Tect, as part of an effort to reduce its annual payouts, will offer a discount to holders of car-theft policies if their cars have anti-theft devices or alarm systems

Premise 1 - Pro-Tect Insurance Company has recently been paying out more on car-theft claims than it expected
Premise 2 - Cars with special antitheft devices or alarm systems are much less likely to be stolen than are other cars

To strengthen the plan, we have to choose an answer choice, which shows that the annual payout will be reduced after offering discount on car-theft policies.
Option C - If the discount offered is more than the cost of buying certain highly effective antitheft devices, more people will buy highly effective antitheft devices to avail the discount offered. More the number of anti-theft devices installed, less will be the car theft claims, resulting in reduction in annual payouts.

Choice C is the correct answer of course (mostly because choices A, B, D, and E are lousy), but in my opinion it's a good example of a flawed correct answer on GMAT CR.

Why? It doesn't indicate who is buying the devices.

Sure, it's a reasonable assumption that the consumer is the one buying the anti-theft devices (which is a strengthener because it increases the likelihood of consumers utilizing the discount), since that is the very point of the proposed discount, but if it were the company buying the devices (not a preposterous suggestion), then this answer would in some ways be a weakener, because in that case, the discount would cost the company more than simply providing these devices directly to consumers, with the exact same effect (increased consumer protection from theft).

Thus, you have to assume correctly that the answer is talking about the consumers buying the devices for it to make sense, and then it becomes a question about implementation and human decision-making. In other words, it's a strengthener because it shows us that consumers are likely to take advantage of the proposed discount because it makes financial sense.

Thus, in my option, Choice C should read something more like this:

"In one or two years, the discount that Pro-Tect is offering to consumers will amount to more than they would pay to buy certain highly effective antitheft devices."

(D) Currently, Pro-Tect cannot legally raise the premiums it charges for a given amount of insurance against car theft.

We want to know whether the proposed discount is likely to reduce annual payments on car theft claims, and this has nothing to do with the cost of insurance premiums. Choice (D) is irrelevant and can be eliminated.


GMATNinja
Thank you for your explanation. To clarify on Choice D, this is just focusing on revenues (the premium we can command) but the argument is focused on controlling costs --> what we pay out, correct?

What I found confusing about the correct answer choice was the "one to two" years part. What is there is a new technology in a few years, or these technologies become obsolete?

Pro-Tect has come up with a specific plan to reduce payouts: it will give people discounts if their cars have anti-theft devices. The question asks us to find the answer choice that provides the strongest indication that this particular plan will achieve its goal.

(D) talks about a completely different plan that might impact profits: raising premiums. It tells us that this alternate plan isn't an option.

That really doesn't give us any insight at all into the plan mentioned in the passage. Will Pro-Tect achieve its goal by giving the discounts? Because (D) talks about a different plan, it doesn't weigh in on one side or the other. Eliminate (D).

Here's (C):

This gives us reason to believe that people will actually install the anti-theft devices. If it only takes a year or two to make up the cost of installing the device, then surely it makes sense to put one in your car. After all, no one wants their car to be stolen anyway, so it's a win-win for the car owner and for Pro-Tect.

If people actually put the device in their cars, then their cars will be stolen less frequently. In turn, Pro-Tect will have to pay out fewer car-theft claims, and their annual payouts will be reduced.

To your point about what might happen in a year or two: sure, the devices could become obsolete, or some other product could come out on the market. That's ok, though -- we don't need to PROVE the Pro-Tect's plan will work. We just need an option that provides an indication that payouts will be reduced.

(C) gives us that indication, while the other options do not. That's why (C) is the correct answer.

I hope that helps!
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