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# Insurance Company X is considering issuing a new policy to cover

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Updated on: 31 Jan 2018, 06:17
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The Official Guide for GMAT Review, 10th Edition, 2003

Practice Question
Question No.: CR 4
Page: 499

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

Originally posted by pzazz12 on 06 Oct 2010, 06:10.
Last edited by hazelnut on 31 Jan 2018, 06:17, edited 1 time in total.
Edited the question.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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06 Oct 2010, 06:56
1
only A

All other answer choices does not minimize the loss. Conclusion: X is concerned that the income from the policies would not be sufficient to pay for the claims.
A=> right it pointing out how they can minimize loss
B=>individuals who did not suffer any serious diseases as children can still suffer in the old age
C=>this will have the reverse effect
D=>this could also have reverse effect
E=>still can not cover the cost

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

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

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06 Oct 2010, 08:13
A for me.

A.Attracting middle-aged customers unlikely to submit claims for benefits for many years --> This helps them get the premimum for a long time without having to pay for the claims.
B.Insuring only those individuals who did not suffer any serious diseases as children --> This does not gurantee in old age these folks wont have any problems.
C.Including a greater number of services in the policy than are included in other policies of lower cost --> This will make it more uneconomical.
D.Insuring only those individuals who were rejected by other companies for similar policies --> This will make it more uneconomical.
E.Insuring only those individuals who are wealthy enough to pay for the medical services --> If these guys take insurance they would claim the bills and their being simply rich does not help the company.
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18 May 2011, 03:56
clean A here giving reasons for accumulating funds.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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21 Jul 2011, 05:28
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

SC followup question: In the 1st sentence of the Stimulus, is it correct to say "considering issuing" ? Isn't it more appropriate to say "considering to issue" ?
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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21 Jul 2011, 06:44
abhicoolmax wrote:
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

SC followup question: In the 1st sentence of the Stimulus, is it correct to say "considering issuing" ? Isn't it more appropriate to say "considering to issue" ?

Considering to X is the wrong idiom I believe.
Considering X is the right form.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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21 Jul 2011, 06:52
A is most likely the correct answer:

A) allows the company to attract middle aged customers who won't submit claims for years allowing the insurance company to collect years of premiums before they'll likely have to pay coverage for a claim. Correct answer.

B) The insurance policy is discussing coverage for elderly people, not children. Sure, there may be a correlation between getting sick as a kid or getting older, but the stimulus provides no support for it. Let's stick to the stimulus and not assume anything.

C) Would not alleviate the concerns of the company. In fact, the concerns would be magnified if they offered even MORE services under this policy at a low cost. This is an incorrect answer

D) is tricky. It would allow the company to attract more customers which is what they want to do. But the company is concerned about providing the low cost coverage for people likely to get sick (the elderly). Answer choice D allows the company to attract customers, but does nothing to alleviate the potential cost burden. Contrast this answer choice with answer choice A) which allows both a method of attracting customers AND alleviating costs. As between the two, A is the better answer choice.

E) deals with wealth, but is not a great answer choice. Insurance covers the cost of medical services regardless of the income of the patients. Though the company may attract a wealthier clientele with E), E) still does nothing to help attract a broad base of customers (in fact, it suggests only attracting a minority of people) and it does nothing to alleviate the cost that the insurace company would have to pay in potential claims. Another way to think of this is: Old people will get sick whether they are rich or not. Being rich has no bearing on the company's liability under the insurance policy - at least not in this particular stimulus. Thus, E is incorrect.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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20 Sep 2012, 23:29
1
JohnGaltMBA wrote:
A is most likely the correct answer:

A) allows the company to attract middle aged customers who won't submit claims for years allowing the insurance company to collect years of premiums before they'll likely have to pay coverage for a claim. Correct answer.

B) The insurance policy is discussing coverage for elderly people, not children. Sure, there may be a correlation between getting sick as a kid or getting older, but the stimulus provides no support for it. Let's stick to the stimulus and not assume anything.

C) Would not alleviate the concerns of the company. In fact, the concerns would be magnified if they offered even MORE services under this policy at a low cost. This is an incorrect answer

D) is tricky. It would allow the company to attract more customers which is what they want to do. But the company is concerned about providing the low cost coverage for people likely to get sick (the elderly). Answer choice D allows the company to attract customers, but does nothing to alleviate the potential cost burden. Contrast this answer choice with answer choice A) which allows both a method of attracting customers AND alleviating costs. As between the two, A is the better answer choice.

E) deals with wealth, but is not a great answer choice. Insurance covers the cost of medical services regardless of the income of the patients. Though the company may attract a wealthier clientele with E), E) still does nothing to help attract a broad base of customers (in fact, it suggests only attracting a minority of people) and it does nothing to alleviate the cost that the insurace company would have to pay in potential claims. Another way to think of this is: Old people will get sick whether they are rich or not. Being rich has no bearing on the company's liability under the insurance policy - at least not in this particular stimulus. Thus, E is incorrect.

But isn't the argument talking about the elderly people insurance policies so in that case how can A be right? Please explain
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23 Sep 2012, 03:08
+1 A rest all are not helping the strategy.
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08 Nov 2012, 02:54
1
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?
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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08 Nov 2012, 03:16
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?

The case given in the argument is clear - "New policy for elderly citizens for the deseases that affect elderly!"
Now if company sells the policies only to elderly, chances are that everyone (or majority) is going to claim. practical knowledge tells us that money that we claim from insurance is much higher than premium we pay. So insurance company will lose money in such case.

What can be done to avoid it? Either reduce the costs (claim) or increase the revenue. The only way to do this is get people who have least probability of claims. They will pay but not claim! Ans A provides this solution.

Hence ans A it is.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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08 Nov 2012, 07:13
3
Hi,

Let me try and help by going through one by one...

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.
So overall sense is: Company X is considering a new policy, but is worried that the payouts would be more than the possible premiums

Which of the following strategies would be most likely to minimize Company X's losses on the policies?
So which answer would help them lower their losses. This could be higher premiums or lower payouts. Let us see,,,,

(A) Attracting middle-aged customers unlikely to submit claims for benefits for many yearsThis works. If people can pay in for several years before claiming, then they are more likely to have paid enough to cover any possible claims
(8) Insuring only those individuals who did not suffer any serious diseases as childrenNot relevant. This is a policy for diseases relating to the elderly, their childhood history is not relevant
(C) Including a greater number of services in the policy than are included in other policies of lower costNope. This would potentially increase the number/size of claims.
(D) Insuring only those individuals who were rejected by other companies for similar policies Nope. This would mean only higher risk patients, so more claims
(E) Insuring only those individuals who are wealthy enough to pay for the medical services Nope. Not relevant. Who cares if they COULD pay for the services, the insurance means they would not have to
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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04 Sep 2013, 19:58
I have a question - since this is an "Evaluate the Argument" type of question - if we choose A, aren't we inferring a little too much? Meaning - this policy is for elderly people and the answer suggests that we attract middle-aged customers. Isn't that steering us in a different direction.

P.S: I know that A is the correct answer according to the OG, but still can't seem to reason it out.
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17 Oct 2013, 07:54
russ9 wrote:
I have a question - since this is an "Evaluate the Argument" type of question - if we choose A, aren't we inferring a little too much? Meaning - this policy is for elderly people and the answer suggests that we attract middle-aged customers. Isn't that steering us in a different direction.

P.S: I know that A is the correct answer according to the OG, but still can't seem to reason it out.

We will not be going too far in inferring considering we have to find the best option from these 5 choices only. You would agree that B,C,D are clearly out. You may come close to E thinking that wealthy people will be able to pay but that also does not guarantee it will happen, so Co.'s question still remains, how to reduce claim losses. Only way is suggested by choice "A." This group is less likely to claim for "elderly disease" for quite sometimes and if the company widens its approach to these people, company's purpose is solved.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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12 Jul 2014, 00:05
The reason we chose A is :

If Company X attracts middle aged people who will not be claiming any amount in the near future,X could use the premiums that these Middle aged people had paid. In this way this excess amount can be used to settle claims made by the elderly people covered in X's new policy.

Is my understanding right?
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16 Feb 2015, 08:23
1
Selected B.... wrong.

A.Attracting middle-aged customers unlikely to submit claims for benefits for many years .... wrong. Talking about the wrong group of people.
B.Insuring only those individuals who did not suffer any serious diseases as children -> in MY opinion the right answer. Although there is may be no cennection between having serious deseases as children and elderly people, BUT A shifts the group from elderly people on middle-aged people... Argument is talking about another group of people, how can be choice A correct ??
C.Including a greater number of services in the policy than are included in other policies of lower cost -> it makes the situation even worse - more services for the same price
D.Insuring only those individuals who were rejected by other companies for similar policies -> it makes the situation even worse.
E.Insuring only those individuals who are wealthy enough to pay for the medical services -> being rich doesn't mean that rich people pay higher premiums.

Why should middle-aged people buy polices with service portfolio for elderly people ?

Can the experts please explain this one.. ! Which question type is it ?
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11 May 2015, 09:33
2
BrainLab wrote:
Selected B.... wrong.

Why should middle-aged people buy polices with service portfolio for elderly people ?

Can the experts please explain this one.. ! Which question type is it ?

This is actually a strengthen question. And (A) only states that they should attract those people. How they do it, well, that's another story.

In theory, they could say "Hey, if you sign up now, at the age of 50, we'll give you a discount on donuts for 2 weeks" - However they choose to attract the people is irrelevant, but it's only about getting them to sign on early --> pay premium --> once they get old and sick, the insurance company has collected enough money (because they signed up early) to actually pay them.

Imagine this: You sign up for a life-insurance and you get hit by a car the day after - thats a huge blow for the insurance company. But if you've been a customer of that insurance company for 40 years, getting hit by a car is not as costy for the insurance company
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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12 May 2015, 02:58
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 If Company X attracts income from policies but does not have to lose money from policy claims it will minimize losses.
B.Insuring only those individuals who did not suffer any serious diseases as children The current status of health of policy holders is relevant, not their childhood health.
C.Including a greater number of services in the policy than are included in other policies of lower cost This would increase expenditures.
D.Insuring only those individuals who were rejected by other companies for similar policies Insuring people with more severe health problems might also increase expenditures.
E.Insuring only those individuals who are wealthy enough to pay for the medical services Even if individuals are wealthy enough to pay, Company X can spend more money on policy coverage than they receive.
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Re: Insurance Company X is considering issuing a new policy to cover  [#permalink]

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12 May 2015, 03:04
1
"SC followup question: In the 1st sentence of the Stimulus, is it correct to say "considering issuing" ? Isn't it more appropriate to say "considering to issue" ? "

Consider can be followed by a gerund or noun phrase. So although it sounds strange, "considering issuing" is correct.
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10 Jan 2016, 19:53
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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

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.
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