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# For similar cars and comparable drivers, automobile

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Manager
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For similar cars and comparable drivers, automobile [#permalink]

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03 Aug 2012, 16:40
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Difficulty:

5% (low)

Question Stats:

84% (02:10) correct 16% (01:17) wrong based on 1670 sessions

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For similar cars and comparable drivers, automobile
insurance for collision damage has always cost more
in Greatport than in Fairmont. Police studies, however,
show that cars owned by Greatport residents are, on
average, slightly less likely to be involved in a collision
than cars in Fairmont. Clearly, therefore, insurance
companies are making a greater profit on collisiondamage
insurance in Greatport than in Fairmont.

In evaluating the argument, it would be most useful to
compare

(A) the level of traffic congestion in Greatport with
the level of traffic congestion in Fairmont

(B) the cost of repairing collision damage in
Greatport with the cost of repairing collision
damage in Fairmont

(C) the rates Greatport residents pay for other
forms of insurance with the rates paid for similar
insurance by residents of Fairmont

(D) the condition of Greatport's roads and streets
with the condition of Fairmont's roads and
streets

(E) the cost of collision-damage insurance in
Greatport and Fairmont with that in other cities
[Reveal] Spoiler: OA
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Re: For similar cars and comparable drivers, automobile [#permalink]

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03 Aug 2012, 17:28
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This argument assumes that the cost of insurance alone determines the profit a car insurance company stands to make. Specifically, the argument contends that an insurance company in Greatport that charges more than one in Fairmont will be more profitable, especially if drivers in Greatport are less likely than those in Fairmont to get into an accident.

However, there could be another factor besides cost of insurance and the likelihood of a collision that determines how much profit an insurance company stands to make. (B) provides a compelling alternative explanation: if car repairs are significantly more expensive in Greatport than in Fairmont, then Greatport insurance companies will not be more profitable than those in Fairmont. Thus in evaluating the argument we need to know the cost of car repairs.

Hope that helps!
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Re: For similar cars and comparable drivers, automobile [#permalink]

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04 Aug 2012, 03:19
(B) tells us that the post collision issue should be related to the insurance company's main job which depends on ;
* the cost of repairing collision damage in Greatport with the cost of repairing collision damage in Fairmont.
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Re: For similar cars and comparable drivers, automobile [#permalink]

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05 Aug 2012, 22:49
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Given:
Car insurance in Greatport > Car insurance in Fairmont

(A) the level of traffic congestion in Greatport with the level of traffic congestion in Fairmont - Infomation on the traffic congestion in two cities does not provide information why there is difference in insurance costs - Incorrect
(B) the cost of repairing collision damage in Greatport with the cost of repairing collision damage in Fairmont - If the cost of repairing in Great port is greater than in fairmont, it is highly likely for the insurance companies to charge more for the car insurance - Correct
(C) the rates Greatport residents pay for other forms of insurance with the rates paid for similar insurance by residents of Fairmont - Out of scope - Incorrect
(D) the condition of Greatport's roads and streets with the condition of Fairmont's roads and streets - No direct relation between insurance costs and road conditions. Scope missing - Incorrect
(E) the cost of collision-damage insurance in Greatport and Fairmont with that in other cities - Irrelevant information - Incorrect
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Re: For similar cars and comparable drivers, automobile [#permalink]

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19 Apr 2014, 16:18
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: For similar cars and comparable drivers, automobile [#permalink]

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16 Jun 2015, 15:46
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.
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Re: For similar cars and comparable drivers, automobile [#permalink]

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09 Jul 2016, 04:30
For similar cars and comparable drivers, automobile insurance for collision damage has always cost more in Greatport than in Fairmont. Police studies, however, show that cars owned by Greatport residents are, on average, slightly less likely to be involved in a collision than cars in Fairmont. Clearly, therefore, i insurance companies are making a greater profit on collision damage insurance in Greatport than in Fairmont.
In evaluating the argument, it would be most useful to compare

(A) the level of traffic congestion in Greatport with the level of traffic congestion in Fairmont

(B) the cost of repairing collision damage in Greatport with the cost of repairing collision damage in Fairmont
CORRECT:- Lets assume Greenport is a rich town and everyone only have BMW, Rolls ROYCE , Jaguar and Ferrari and such pensive cars that need only authorised serve at authorised company showrooms. Even though Greatport has less accident (say 30 accidents) compared to (fairmont say 50 accident), The cost of repair in Greatport is 200$, thus insurance company will have to pay 30*200=6000$.
Now Fairmont is a coal mining town where people drive, trucks, Honda, Prius, Ford and other cheap cars that can be repaired by a local mechanic at a small cost. If the cost of repair in Fairmont is 40$, then Insurance company will have to pay 50*40=2000$.

So despite higher Insurance rate, the company is actually spending 4000\$ more in Greeenport than in freemont.

(C) the rates Greatport residents pay for other forms of insurance with the rates paid for similar insurance by residents of Fairmont

(D) the condition of Greatport's roads and streets with the condition of Fairmont's roads and streets

(E) the cost of collision-damage insurance in Greatport and Fairmont with that in other cities
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Re: For similar cars and comparable drivers, automobile   [#permalink] 09 Jul 2016, 04:30
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# For similar cars and comparable drivers, automobile

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