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# Insurance Company X is considering issuing a new policy to

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Director
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Insurance Company X is considering issuing a new policy to [#permalink]

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20 Jan 2009, 21:03
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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

Can somebody explain the answer pls?
If you have any questions
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20 Jan 2009, 22:05
I think C makes sesnse.

Clearly, B, D & E are ruled out. Tough between A & C. But A can be ruled out based on the fact that the policy must cover elderly people. Targetting Mid aged segment isn't a correct policy.The idea should be to differentiate your product. This can be done by not reducing the cost but by increasing the quality & quantity of services provided by the product.
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20 Jan 2009, 22:21
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

Can somebody explain the answer pls?

I believe the answer is A
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20 Jan 2009, 22:26
yes it is but why?
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20 Jan 2009, 22:32
chicagocubsrule wrote:
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

Can somebody explain the answer pls?

I believe the answer is A

We are told that insurance is used to cover services required by the elderly and asked how can we minimize these payouts to treat these illnesses
A - If you recruit customers who cannot get these diseases that is one way to minimize losses
B - Children? Unfortunately several senior citizens are suffering from various diseases now despite the fact that they were healthy. So the disease in question is unlikely to be detected in children
C - Including a greater number of services is not relevant to the issue at hand
D - This would probably increase your losses since you'd be taken on those who are ill
E - It makes to difference if clients are wealthy enough to pay for medical services since they would already have insurance

Hope this helps. Let me know if you have any other questions.
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17 May 2010, 04:28
The question is from OG -11th.

This is one of the examples of strange GMAT logic in the gmatland.

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 that covers the diseases that afflict elderly.
Will you buy such a insurance??? Of course NOT! because you are middle-age person, and those diseases will not affect you soon. Then why to buy it? no reason! Thus, the strategy of attracting middle age customers is faulty!
So , what is the point? why GMAT considers this anwser choice correct?
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Re: CR: Insurance Company   [#permalink] 17 May 2010, 04:28
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