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Technically a given category of insurance policy is under

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Technically a given category of insurance policy is under [#permalink] New post 25 Mar 2009, 10:13
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Question Stats:

48% (02:42) correct 52% (02:04) wrong based on 346 sessions
Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits.
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.

Need Explanations
[Reveal] Spoiler: OA

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Last edited by dentobizz on 05 Nov 2013, 16:53, edited 1 time in total.
Adding OA
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Re: CR-Insurance Policy [#permalink] New post 25 Mar 2009, 13:08
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(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies. This is extreme language and irrelevant to the argument.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case. The argument is about policy does not represents a net loss not that represent a net loss.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. Levels of claims is not the focus of the argument.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits. This is again extreme language. Nowhere in the argument does the author mention about company's profit.
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned. If the claims request to pay out all of the premium income, then those income could not be used to invest and thus will sure post a net loss in every case. This is correct assumption.
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Re: CR-Insurance Policy [#permalink] New post 25 Mar 2009, 22:36
nitya34 wrote:
9. Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits.
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.

Need Explanations


D is the best
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Re: CR-Insurance Policy [#permalink] New post 26 Mar 2009, 05:19
eileen1017 wrote:
(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies. This is extreme language and irrelevant to the argument.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case. The argument is about policy does not represents a net loss not that represent a net loss.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. Levels of claims is not the focus of the argument.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits. This is again extreme language. Nowhere in the argument does the author mention about company's profit.
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned. If the claims request to pay out all of the premium income, then those income could not be used to invest and thus will sure post a net loss in every case. This is correct assumption.



Why you have chosen E? I don't think it is E but it is D)?
- Insurance company is not going to expect claim for every policy? (E).
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Re: CR-Insurance Policy [#permalink] New post 26 Mar 2009, 05:20
Nitya, Can you please confirm what is the correct answer?
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Re: CR-Insurance Policy [#permalink] New post 26 Mar 2009, 08:21
OA-E

Admin:where is Kudo functionality?some bugs there :roll:
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Re: CR-Insurance Policy [#permalink] New post 18 Sep 2009, 05:22
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I have difficulty dismissing 'A' even though 'E' is the clear-cut answer...
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Re: CR-Insurance Policy [#permalink] New post 18 Sep 2009, 11:31
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boeinz wrote:
I have difficulty dismissing 'A' even though 'E' is the clear-cut answer...

A is clearly out of scope. Just think, is the argument anyway concerned about the motivation of insurance companies to attract more customers ? The argument only talks about 'under-priced policies' , for that matter not even normal/over-priced policies:)
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Re: CR-Insurance Policy [#permalink] New post 18 Sep 2009, 20:09
Economist wrote:
boeinz wrote:
I have difficulty dismissing 'A' even though 'E' is the clear-cut answer...

A is clearly out of scope. Just think, is the argument anyway concerned about the motivation of insurance companies to attract more customers ? The argument only talks about 'under-priced policies' , for that matter not even normal/over-priced policies:)


Thanks alot!
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Re: CR-Insurance Policy [#permalink] New post 18 Sep 2009, 20:17
nitya34 wrote:
9. Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies. I hate deliberately
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case. I hate every case
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. accuracy of claims is not in doubt of testmakers
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits. still does not explain why the conclusion is made
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned. What to do, have tried all others had to go with this. May be there is sth in this. ok lets anal-yze it more. there is delay for a period where premium can be kept and hence invested and would therefore yield returns for that time-period to offset the claims and/or it expenses

IMO E
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Re: Technically a given category of insurance policy is under [#permalink] New post 06 Nov 2013, 07:26
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Re: Technically a given category of insurance policy is under [#permalink] New post 05 Dec 2013, 19:33
the key to this question are the words "not in every case". so we are not actually looking for most cases or many cases. usually the words 'at least some' throw us off the hook. In this case at least some is sufficient and thats what we are looking for. and hence the answer is E.
Re: Technically a given category of insurance policy is under   [#permalink] 05 Dec 2013, 19:33
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