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Insurance Company X is considering issuing a new policy to cover

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Magoosh GMAT Instructor
Joined: 28 Dec 2011
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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11 Jan 2016, 14:52
1
crunchboss 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

OG13 CR Q#53

Sir,
The Official answer for this Question is Option A, but after spending so much time I still find it Out of Scope because it deviates from the Sample Enough.

Questions Stem Defines the sample Space : elderly people
Now Option A completely deviates and talks about middle-aged customers

Middle aged Customers are not equal to Elderly People. middle-aged customers are absolutely different age group.

Dear crunchboss,
I'm happy to respond.

Many official CR questions are written to have the feel of business in the real world. This particular question would make much more sense if you have had a little experience with ins & outs of the insurance industry.

First of all, it should be clear that (B), (C), (D), and (E) are all disastrous and would not lead to success, so in that sense, POE would lead to (A). I will not discuss those unless you have a question on them.

Choice (A) is not out of scope, for the simple reason that "old age" doesn't have a fixed and definitive beginning. When does a human being start to get old? At 40? at 50? at 65? at 75? You see, there is not just a single clear beginning. Presumably, most of these diseases would afflict folks in, say, their 70s or 80s or 90s. If the company could get folks in their 50s and 60s to buy it, then that would generate lots of income from a temporarily lower-risk group, and of course, eventually those people would enter the higher risk group and need the insurance. Of course, if the insurance company wants to sell the insurance to people in their 50s, it obviously is not going to market the policy as "insurance for the elderly," because no one in their 50s would be interested in that. The company would have to find a creative way to package it (e.g. "addressing health concerns as we age") in order to appeal to folks in their 50s. People in their 50s are aware that they are not as young as they used to be, and they are starting to notice some of the effects of aging, so they naturally would be interested in any insurance that addressed health concerns associated with aging, even though the diseases of the "elderly" would still be a few decades away.

I don't know how much you know about insurance, but the insurance industry does things of this sort all the time! The whole game about insurance is to get enough low risk people into the plan so that they can pay for the high risk folks, and toward that end, the insurance company usually has to market and sell the insurance to a lot of people who have little need for it. That's just the way the business works. Knowing about the way business situations are handled in the real world is very important for the CR:
http://magoosh.com/gmat/2014/gmat-criti ... knowledge/

Does all this make sense?
Mike
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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02 Jul 2016, 18:45
In this question, company X aim is to minimize the loss on the policies. These policies as mentioned in question stem is covering services required by elderly people.
Option A is about attracting middle-aged customers to these policies.
Isn't this option outside the scope of the passage? Why would middle-aged people be interested in policies covering services required by elderly?
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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17 Aug 2016, 19:42
1
pzazz12 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

I think this question actually require prior knowledge of Insurance Policy, specifically Insurance Company's revenue equal to the premium times the amount of time that the client pays. Some who did not have this prior knowledge would think that "Premiums" in the argument is the total income for the Insurance company and have no thing to do with the installing time.

Well... am I thinking that just because I'm a foreign student? Is it something intuitive to native speakers?
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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13 Sep 2017, 11:23
phanthibaovien wrote:

I think this question actually require prior knowledge of Insurance Policy, specifically Insurance Company's revenue equal to the premium times the amount of time that the client pays. Some who did not have this prior knowledge would think that "Premiums" in the argument is the total income for the Insurance company and have no thing to do with the installing time.

Well... am I thinking that just because I'm a foreign student? Is it something intuitive to native speakers?

Though ideally, it is good to have knowledge about the mentioned passage. However, even if you do not have any background you can easily eliminate the wrong answer choices (at least for this argument) - Referred to as POE method

B - Diseases in childhood not even mentioned - So irrelevant
C - It is logical that if you increase services (for most industries for that matter) will increase cost, which means they will further increase the losses - Hence, Out
D - Insuring people who are rejected by other companies - Again here it does not makes sense to give policy to individuals who have been rejected by other insurance companies, it is obvious because insurance company wants to reduce losses
E - Being wealthy is completely irrelevant

So we are left only with A

For all above explanations, we nowhere used terms such as "premium".

Hope this helps.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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29 Oct 2017, 05:32
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
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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03 Nov 2017, 20:00
this is an application question.
boiled down to A and E.
Only A holds b/c it directly connects with the argument. Also, in E, wealthy patients still claim benefits from their insurance coverage.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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14 Jan 2018, 03:25
GMATNinja VeritasPrepKarishma GMATNinjaTwo

Do experts agree that is is not a classic EVALUATE Q?
I did not find adding 'whether' before each ans choice was correct approach.

Should we ideally approach this Q as a strengthener type?
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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17 Jan 2018, 18:10
adkikani wrote:
GMATNinja VeritasPrepKarishma GMATNinjaTwo

Do experts agree that is is not a classic EVALUATE Q?
I did not find adding 'whether' before each ans choice was correct approach.

Should we ideally approach this Q as a strengthener type?

As we've said before (i.e. in this post), accurately determining the question type is not necessarily useful or required. Nevertheless, I'm not sure whether "strengthener" is accurate. What are we trying to strengthen? That Company X is concerned? That the income from the policies would not be sufficient to pay for the claims that would be made?

Look at each answer choice... does it describe a strategy that would LIKELY minimize Company X's losses on the policies? If not, eliminate it. If so, keep it. Regardless of the question type, you HAVE to be clear about what the passage says and what is being asked. The GMAT is creative with the question stems, and not everything will fit neatly into a particular category of question types. This is part of what makes these questions so tough, and unfortunately there's no way around the (sometimes difficult) work of figuring out exactly what you're being asked -- even if it's something you've never been asked in another GMAT question before.

For anybody that hasn't already read it, the Ultimate CR Guide for Beginners discusses a generalized approach to CR that does not rely on question type.

I hope this helps!
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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14 Jul 2018, 05:50
RichaChampion 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

OG13 CR Q#53

Sir,
The Official answer for this Question is Option A, but after spending so much time I still find it Out of Scope because it deviates from the Sample Enough.

Questions Stem Defines the sample Space : elderly people
Now Option A completely deviates and talks about middle-aged customers

Middle aged Customers are not equal to Elderly People. middle-aged customers are absolutely different age group.

Middle age is between 45yr-65yr. Elder/Older gp people > 65 year.
So when author says "Attracting middle-aged customers unlikely to submit claims for benefits for many years ", he/she meant attracting people of age group 45-65 yr old to take insurance, they may not submit claims for 4-5 years but they will pay for insurance premium. That premium amount can be used for compensation for people who claimed benefit. Author doesn't say "ONLY" attract people of age group 45-65 year old.

So if 50 elder people and 50 middle aged people take insurance then company can at least balance out expenses if not profit.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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06 Dec 2018, 09:03
summer101 wrote:
Q. 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
(8) 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

As it says diseases which afflict elderly, A & B seemed out. C & D increases the losses for company X. So only ans left is E. Though E is weird its the only choice that remains

I am confused with the official ans. Can anyone throw some light?

A - Middle-aged customers, less chances of suffering from diseases, lesser chances of applying for claims - Probable answer. Let's hold this one.
B - No diseases during childhood doesn't guarantee no diseases in old age - Incorrect
C - More services? If claimed = more loss - Incorrect
D - Rejected by other companies would imply that they've had a history or might be suffering from a disease - Incorrect
E - Wealthy customers would still claim that's why they would buy the policy - Incorrect

Hence A is the appropriate choice
Re: Insurance Company X is considering issuing a new policy to cover &nbs [#permalink] 06 Dec 2018, 09:03

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