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weird GMAT logic ?!!

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weird GMAT logic ?!! [#permalink] New post 17 May 2010, 03:38
00:00
A
B
C
D
E

Difficulty:

  5% (low)

Question Stats:

81% (02:14) correct 18% (01:37) wrong based on 11 sessions
This is the question from OG-11th.

58.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


This is one of the examples of strange GMAT logic in the gmatland! :twisted:

GMAT says that correct answer choice is A, since middle-age customers unlikely to submit claims for benefits.

Now, lets think about this in other way: Imagine you are middle-age customer and you are proposed an excellent insurance policy (wow!) that covers the diseases that afflict elderly.
Would you buy such a insurance??? Of course NOT! because you are middle-age person, and those diseases would not affect you soon, because those "services required by elderly people" Then why to buy it? NO REASON! Thus, the strategy of attracting middle age customers is faulty! :twisted:

So , what is the point? why GMAT considers this anwser choice correct?

I would argue with GMAC about such questions, such logic is faulty!

Guys, do you agree with me or not? The ultimate question is potentially how much such faults are in the real GMAT? It is possible to complain?
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Re: weird GMAT logic ?!! [#permalink] New post 17 May 2010, 05:11
Pkit wrote:
This is the question from OG-11th.

This is one of the examples of strange GMAT logic in the gmatland! :twisted:

GMAT says that correct answer choice is A, since middle-age customers unlikely to submit claims for benefits.

Now, lets think about this in other way: Imagine you are middle-age customer and you are proposed an excellent insurance policy (wow!) that covers the diseases that afflict elderly.
Would you buy such a insurance??? Of course NOT! because you are middle-age person, and those diseases would not affect you soon, because those "services required by elderly people" Then why to buy it? NO REASON! Thus, the strategy of attracting middle age customers is faulty! :twisted:

So , what is the point? why GMAT considers this anwser choice correct?

I would argue with GMAC about such questions, such logic is faulty!

Guys, do you agree with me or not? The ultimate question is potentially how much such faults are in the real GMAT? It is possible to complain?


I will differ here, if we consider the way premiums are decided for insurance policies we would notice that the premiums are directly proportional to the applicants age. If you enroll for a policy, say at age 30 you would certainly pay a lower premium than you were at 50.

To continue your reasoning further

if you are middle-age customer and you are proposed an excellent insurance policy (wow!) that covers the diseases that afflict elderly........and the premium is very very low and you presently do not have any policy whatsoever would you then buy it.

May be....

Moreover for the insurance cos there are only two options either increase costs or reduce claims because the paragraph says that costs must be low you need to reduce claims and A says that the middle class people are unlikely to make claims.

This may not be the perfect logic but it is the nearest correct answer among the five options. With GMAT the aim is to get the answer correct and move on :)
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Re: weird GMAT logic ?!! [#permalink] New post 17 May 2010, 05:53
Quote:
I will differ here, if we consider the way premiums are decided for insurance policies we would notice that the premiums are directly proportional to the applicants age. If you enroll for a policy, say at age 30 you would certainly pay a lower premium than you were at 50.

To continue your reasoning further

if you are middle-age customer and you are proposed an excellent insurance policy (wow!) that covers the diseases that afflict elderly........and the premium is very very low and you presently do not have any policy whatsoever would you then buy it.

May be....

Moreover for the insurance cos there are only two options either increase costs or reduce claims because the paragraph says that costs must be low you need to reduce claims and A says that the middle class people are unlikely to make claims.

This may not be the perfect logic but it is the nearest correct answer among the five options. With GMAT the aim is to get the answer correct and move on :)


In my opinion the BLUE part makes most sense. And do we really care if we get through with gud scores..???
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Re: weird GMAT logic ?!! [#permalink] New post 18 May 2010, 04:02
Quote:
"This may not be the perfect logic


This is exactly what I have meant,
My assumption was that revenues=["premium is very very low" * " small number of middle-age people ](assumed that middle-age people tend not to think about the old and the diseases, thus, if they acquire an insurance policy they would confess to themselves that they very soon become old and ill, thus it was assumed that the number of middle-age people is small) - thus the revenue would not be significant=> so, the strategy is not efficient.

OK, in conclusion I agree with sh00nya that it is the best answer among those presented.

thanks .
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Re: weird GMAT logic ?!! [#permalink] New post 18 May 2010, 08:52
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Answer is A.

B, C, D were egregiously wrong. E I thought twice about, mentioned wealthy enough people to pay for the services. Well, when I see a question talking about wealthy ppl it raises a red flag in my head. GMAT people can't be socioeconomically biased...plus the insurance only kicks in if the premiums are paid. Doesn't matter if you're wealthy enough..if you are then the service kicks in, if it doesn't then no revenues are generated and no costs are generated. This does not affect profitability.

A does affect profitability. Oriignally the target is senior customers with senior health problems. Profitability per customer is low. If we extend revenue income to middle age customers, they get revenue from these customers but costs on average should be lower. Thus profitability can be improved by targeting this new customer segment while offering services unlikely to be claimed. Hence higher profitability.

Hit kudos under my profile and I'll answer more.
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Re: weird GMAT logic ?!! [#permalink] New post 18 May 2010, 09:26
meatdumpling wrote:
Answer is A.

B, C, D were egregiously wrong. E I thought twice about, mentioned wealthy enough people to pay for the services. Well, when I see a question talking about wealthy ppl it raises a red flag in my head. GMAT people can't be socioeconomically biased...plus the insurance only kicks in if the premiums are paid. Doesn't matter if you're wealthy enough..if you are then the service kicks in, if it doesn't then no revenues are generated and no costs are generated. This does not affect profitability.

A does affect profitability. Oriignally the target is senior customers with senior health problems. Profitability per customer is low. If we extend revenue income to middle age customers, they get revenue from these customers but costs on average should be lower. Thus profitability can be improved by targeting this new customer segment while offering services unlikely to be claimed. Hence higher profitability.

Hit kudos under my profile and I'll answer more.


+1 kudos for hint about red flag (wealthy ppl), I will take care of it.


I actually took E, cause thought that rich people would not care wheather to buy the insurance or not.

A - is the best answer, just based on POE (process of elimination).
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Re: weird GMAT logic ?!! [#permalink] New post 27 Apr 2011, 08:41
A is clear enough here , took 1:35 to get to the answer,also poe helps .
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Re: weird GMAT logic ?!! [#permalink] New post 03 Oct 2011, 07:13
My thought process was pretty much the same as Pkit's.

However, after making the same mistake and thinking about it, I noticed one important thing:

The stimulus states: "...issuing a new policy to cover services required by elderly people..."

Now, that led me to think that this policy will cover only the elderly. On this basis, as well as on the basis that Pkit mentioned, I discarded (E). But this is not the case. The policy will cover medical expenses regardless whether you are elderly or not; but it will be targeted at covering illnesses that are common to the elderly.
Re: weird GMAT logic ?!!   [#permalink] 03 Oct 2011, 07:13
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