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In Argonia the average rate drivers pay for car accident

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In Argonia the average rate drivers pay for car accident [#permalink]

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29 Apr 2005, 17:37
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15. In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average.

The conclusion above would be properly drawn if it were also true that in Argonia

(A) the average accident insurance rate for all drivers rises whenever a substantial number of new drivers buy insurance
(B) the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average
(C) the lower the age of a driver, the higher the insurance rate paid by that driver
(D) insurance company profits would rise substantially if drivers were classified in terms of the actual number of miles they drive each year
(E) drivers who have caused insurance companies to pay costly claims generally pay insurance rates that are equal to or lower than those paid by other drivers

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29 Apr 2005, 17:59
B it is.

It means that despite the total costs to the insurance co of insuring the "less driving" drivers is lower than the "more driving" drivers, they pay the same - thus in effect cross subsidizing the insurance of "more driving" drivers.

A is irrelevant - talks abt new buyers.
C is irrelevant - talks abt age of drivers
D is irrelevant - talks about higher costs to drivers (and thus higher profits to the insurance co) if insurance is made available on the basis of mileage. Does not talk about cross subsidy.
E is irrelevant too - talks about unequal insurance rates which have nothing to do with distances driven.
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30 Apr 2005, 03:36
I go with E.

It is never said that the drivers pay equal premium. The question speaks of "average rate of premium". So, the high mileage drivers should be paying equal or lesser premium than that of low milage drivers. Then only will the subsidising effect will come into play.

If the average cost of insuring the high milage drivers are more than that of the low milage drivers, the difference can also be adjusted if the high milage drivers pay more premium than that of low milage drivers.

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30 Apr 2005, 03:48
B. The passage clearly states that

drivers pay for car accident insurance :
It doesn`t mention anything about accidents per se.

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02 May 2005, 14:46
The OA is B.

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02 May 2005, 14:47
The OA is B.

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Re: In Argonia the average rate drivers pay for car accident [#permalink]

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11 May 2012, 01:54
It is how drivers ride for speed and the frequent use of the car. The less you ride the less risks of accidents. So I'll take B
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Re: In Argonia the average rate drivers pay for car accident   [#permalink] 11 May 2012, 01:54
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