For similar house sizes, flood insurance

Question

For similar house sizes, flood insurance for storm and hurricane damage has always cost more in Greenview than in West Palm. Fire department studies, however, show that the house properties owned by Greenview residents are, on average, slightly less likely to be involved in a storm or hurricane than house properties in West Palm. Clearly, therefore, flood insurance companies are making a greater profit on storm and huricane damage insurance in Greenview than in West Palm.

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

(A)the frequency of hurricanes and storms in Greenview with the frequency of hurricans and storms in West Palm

(B)the cost of repairing hurrican and storm damage in Greemview with the cost of repairing hurricane and storm damage in West Palm

(C)the rates Greenview residents pay for other forms of insurance with the rates paid for similar insurance by residents of West Palm

(D)the condition of Greenview's water drainage system with the condition of West Palm's water drainage system

(E)the cost of hurricane and storm damage insurance in Greenview and West Palm with that in other cities

manishgmat1 · Answer

can anybody explain the reason why b and not A please

WoundedTiger · Answer

For similar house sizes, flood insurance for storm and hurricane damage has always cost more in Greenview than in West Palm. Fire department studies, however, show that the house properties owned by Greenview residents are, on average, slightly less likely to be involved in a storm or hurricane than house properties in West Palm. Clearly, therefore, flood insurance companies are making a greater profit on storm and huricane damage insurance in Greenview than in West Palm.

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

(A)the frequency of hurricanes and storms in Greenview with the frequency of hurricans and storms in West Palm

(B)the cost of repairing hurrican and storm damage in Greemview with the cost of repairing hurricane and storm damage in West Palm

(C)the rates Greenview residents pay for other forms of insurance with the rates paid for similar insurance by residents of West Palm

(D)the condition of Greenview's water drainage system with the condition of West Palm's water drainage system

(E)the cost of hurricane and storm damage insurance in Greenview and West Palm with that in other cities

Hi,

I think Option C,D and E can be ruled out. From the Question stem, we get the following information

flood insurance for storm and hurricane damage is greater in Greenview than West Palm and also that Homes in Greenview have slightly less chances compared to houses in West Palm to face storm or hurricane damage and thus insurance companies are making more profits on premium in Greenview.

In Option A don't you think the answer to the question itself will make the information in the argument in-correct. Note that the information in the argument (premise)is always correct and you cannot doubt it. If you consider option A it attacks the premise where as Option B attacks the conclusion which is correct.

rrsnathan · Answer

In this conclusion is : Flood insurance companies are making a greater profit on storm and huricane damage insurance in Greenview than in West Palm.

In question they ask what is consider for conclusion.

(A)the frequency of hurricanes and storms in Greenview with the frequency of hurricans and storms in West Palm -   Not the correct choice. Comparing the frequency doesnt give information about the damage cost. Here in conclusion we are concerned abt the damage cost because of hurricane and Strom .

(B)the cost of repairing hurrican and storm damage in Greemview with the cost of repairing hurricane and storm damage in West Palm -  Correct. Compares the cost amount of two

(C)the rates Greenview residents pay for other forms of insurance with the rates paid for similar insurance by residents of West Palm  - Irrelevant 
 - 
(D)the condition of Greenview's water drainage system with the condition of West Palm's water drainage system - Irrelevant

(E)the cost of hurricane and storm damage insurance in Greenview and West Palm with that in other cities - Irrelevant

Pankaj0901 · Answer

Didn't quite get the correct answer between A and B.
Consider an example, if cost of repairing a damaged home in Greenview is 100$ as against 50$ in West Palm. And, frequency of storm/hurricane in Greenview is 1 time/year Vs 10 times/year in West Palm. So the cost incurred in West Palm would be 500$ (Vs 100$ in Greenview) for a home. So, cost itself is not enough and depends on the frequency. Moreover, how does COST (option B) correlate directly with the PROFIT (conclusion)?

vijk · Answer

First up, this isn't the best-worded question. Your first red flag for A is it contradicts the given information. Let me explain.

Given: Frequency of hurricanes in Green is less than Plam.
Contradiction: But the premium rates are higher
Claim: Hence the companies derive greater profits from Green than Plam.

1. The question says  house properties owned by Greenview residents are, on average, slightly less likely to be involved in a storm or hurricane than house properties in West Palm.  option A is straight-up contradicting the information given in the question. Answers may question inference or bring in outside data but can not take a 180 from the data given in the question.

2. Going beyond this and talking of insurance. An insurance contract is based on the value of asset insured, it's an over-glorified and mystified indemnity bond.  (Let's say you insure your vehicle for 10K, and had to claim insurance and 3K, the next time you go back to the insurer during the same year, they will only honour the contract for leftover amount - 7k unless there is a clause for refill and it costs more. Let's not go there.) 
Simply, the amount the insurer has to payout depends on the A. Value of assets, B. Value of payouts expected to restore the assets to determine the premium.

Now, this is a disguised weaken question. The conclusion is insurance companies are charging more and hence have higher profits.

A is tempting but is out because it does a 180 from the information given. (Another fun fact, insurance companies do calculate prob of a payout while setting rates)

Coming to B - repair cost directly tie into profits, and does not suffer the drawback of A.

Hope this helped.

Pankaj0901 · Answer

Thanks, appreciate your detailed explanation.

VerbalBot · Answer

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For similar house sizes, flood insurance

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