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# A car insurance company is considering issuing a new policy

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Intern
Joined: 18 Feb 2011
Posts: 41

Kudos [?]: 52 [0], given: 26

GPA: 3.91
A car insurance company is considering issuing a new policy [#permalink]

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07 Feb 2012, 08:21
A car insurance company is considering issuing a new policy to cover damages caused by elderly drivers. The company needs to keep premiums low to attract customers, but this might cause the company to lose money as it may mean that the income generated by the premiums will not be sufficient to cover the damages caused by older drivers.  Which of the following strategies will most likely lower the company’s worries?

A. Insuring drivers that are at a younger age and are unlikely to submit claims for several years
B. Insuring only people with a solid driving background and no previous accidents
C. Insuring drivers with sufficient income to cover the damages
D. Insuring only drivers rejected by other companies’ policies
E. Including more categories of damages in the policy than in most older-driver policies

Kudos [?]: 52 [0], given: 26

BSchool Forum Moderator
Joined: 23 Jul 2010
Posts: 556

Kudos [?]: 988 [0], given: 321

GPA: 3.4
WE: General Management (Non-Profit and Government)
Re: A car insurance company is considering issuing [#permalink]

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07 Feb 2012, 08:58
nafishasan60 wrote:
A car insurance company is considering issuing a new policy to cover damages caused by elderly drivers. The company needs to keep premiums low to attract customers, but this might cause the company to lose money as it may mean that the income generated by the premiums will not be sufficient to cover the damages caused by older drivers.  Which of the following strategies will most likely lower the company’s worries?

A. Insuring drivers that are at a younger age and are unlikely to submit claims for several years
B. Insuring only people with a solid driving background and no previous accidents
C. Insuring drivers with sufficient income to cover the damages
D. Insuring only drivers rejected by other companies’ policies
E. Including more categories of damages in the policy than in most older-driver policies

To lower the damages caused by insuring old drivers (who are more likely to get involved in accidents) while keeping the premium low, we need to generate more income from other insurers.
A--this could be one way to generate income since the drivers won't be submitting a claim for several years
B--there is no guarantee that these driver won't be involved in any future accidents
C--Even if the company did this, there is no indication of the number of such drivers & the income generated by the premiums they pay
D--This is likely to further increase the companies worries since these cases were rejected by other co's may be because they were more risky
E--This will add to the already existing common damage categories without giving any method to increase the co's income.
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Kudos [?]: 988 [0], given: 321

Senior Manager
Joined: 08 Jun 2010
Posts: 387

Kudos [?]: 102 [0], given: 13

Location: United States
Concentration: General Management, Finance
GMAT 1: 680 Q50 V32
Re: A car insurance company is considering issuing [#permalink]

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07 Feb 2012, 18:47
Appears to be a similar question I have seen on the 1000CR but seems to be modified in the wording.

A. Insuring drivers that are at a younger age and are unlikely to submit claims for several years

B would be a close second. This is how I eliminated B.
B. Insuring only people with a solid driving background and no previous accidents --> What if they are not active drivers or got banned from driving ? Also past record does not mean future record will be good as well

Kudos [?]: 102 [0], given: 13

Re: A car insurance company is considering issuing   [#permalink] 07 Feb 2012, 18:47
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