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# Nationside, an insurance company, is considering issuing a new policy

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Joined: 02 Nov 2014
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GMAT Date: 08-04-2015
Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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Updated on: 23 Oct 2015, 23:48
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Difficulty:

85% (hard)

Question Stats:

49% (01:48) correct 51% (01:55) wrong based on 364 sessions

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Nationside, an insurance company, is considering issuing a new policy to insure automobile drivers who are elderly and have a record of car accidents. If premiums for the new policy are inappropriately high for a potential customer, that customer will not opt for the new policy. Therefore, Nationside 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 maximize Nationside's profits from the new policy?

A. Marketing the new policy to older drivers with a history of automobile accidents of any type

B. Marketing the new policy to older drivers with a history of minor automobile accidents only

C. Marketing the new policy to younger drivers with no history of automobile accidents

D. Marketing the new policy to younger drivers with some history of automobile accidents

E. Marketing the new policy to older drivers who were rejected by other companies for similar policies

Originally posted by b9n920 on 23 Oct 2015, 06:56.
Last edited by b9n920 on 23 Oct 2015, 23:48, edited 1 time in total.
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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17 Jan 2017, 13:54
2
Nationside, an insurance company, is considering issuing a new policy to insure automobile drivers who are elderly and have a record of car accidents. If premiums for the new policy are inappropriately high for a potential customer, that customer will not opt for the new policy. Therefore, Nationside 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 maximize Nationside's profits from the new policy?

A. Marketing the new policy to older drivers with a history of automobile accidents of any type
Will reduce the profits if the drivers who buy the policy have higher rates of accidents or sever accidents
B. Marketing the new policy to older drivers with a history of minor automobile accidents only
Will maximize the profits since the claims would be lower
C. Marketing the new policy to younger drivers with no history of automobile accidents
The policy was made for elderly at the first place
D. Marketing the new policy to younger drivers with some history of automobile accidents
same as 'C'
E. Marketing the new policy to older drivers who were rejected by other companies for similar policies
if the drivers were rejected by other insurance companies then there is high possibility that they were rejected due to high accident history,therfore if those divers buy the policy then there will be higher claims and that will lead to treduction in the profits for the insurance company
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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23 Oct 2015, 23:50
1
Quote:
Can you please edit the original question and number the options? Currently they are not easily distinguishable

Edited.

Binit.
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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26 Feb 2018, 17:50
1
Curious why E isn't acceptable.

While it's true that customers that were rejected by other companies is likely due to a high potential of accident, it allows Nationside to be predatory in their issuance. If they're the ONLY company that is willing to issue the insurance, the driver will need to pay the very high price or not drive at all.

Unethical, sure, but you can maximize profits that way.
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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23 Oct 2015, 19:54
B seems best: Marketing the new policy to older drivers with a history of minor automobile accidents only

reasoning: satisfies both the condition of the premise : drivers who are elderly and have a record of car accidents AND at the same time if accidents are minor then COST to the company is going to be less and with more such customers the premium can be brought down
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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23 Oct 2015, 20:21
binit wrote:
Nationside, an insurance company, is considering issuing a new policy to insure automobile drivers who are elderly and have a record of car accidents. If premiums for the new policy are inappropriately high for a potential customer, that customer will not opt for the new policy. Therefore, Nationside 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 maximize Nationside's profits from the new policy?

A. Marketing the new policy to older drivers with a history of automobile accidents of any type

B. Marketing the new policy to older drivers with a history of minor automobile accidents only

C. Marketing the new policy to younger drivers with no history of automobile accidents

D. Marketing the new policy to younger drivers with some history of automobile accidents

E. Marketing the new policy to older drivers who were rejected by other companies for similar policies

OA after some replies

Can you please edit the original question and number the options? Currently they are not easily distinguishable

To maximize the profit, market to those who would live longer and cause fewer accidents. C states that.
BUT the premises restrict us as the policy is only for those who are 'elderly and have a record of car accidents'.

Therefore IMHO, B is the best answer.

Please let me know if im wrong.
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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13 Jan 2017, 01:16
Hi expert,
In my 2 cents,we don't know the severity of the accidents;hence it can't be conclude that the specific marketing strategy would help maximize the company's profit.It could be that those who mostly make claims are elder and have minor accident.

Did I miss any crucial information from the passage?
Thanks
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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15 Jan 2017, 23:30
sleepynut wrote:
Hi expert,
In my 2 cents,we don't know the severity of the accidents;hence it can't be conclude that the specific marketing strategy would help maximize the company's profit.It could be that those who mostly make claims are elder and have minor accident.

Did I miss any crucial information from the passage?
Thanks

Minor accidents imply less damage payment. Therefore the profit would be maximized. Hence option B is correct.

(The marketing MUST be done to older people because the policy is made for older people- hence options C and D can be eliminated.)
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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16 Apr 2018, 19:46
b9n920 wrote:
Nationside, an insurance company, is considering issuing a new policy to insure automobile drivers who are elderly and have a record of car accidents. If premiums for the new policy are inappropriately high for a potential customer, that customer will not opt for the new policy. Therefore, Nationside 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 maximize Nationside's profits from the new policy?

Premise: New policy for elderly drivers who have a record of accidents.— potential customers
High premiums— will not opt— concern for revenue less than claims.

Aim: to maximise profits from the new policy

Prethinking: profit = total premium - claims

So we need to look for an option that will have less claims.

A. Marketing the new policy to older drivers with a history of automobile accidents of any type—incorrect, since they still will have to pay for claims

B. Marketing the new policy to older drivers with a history of minor automobile accidents only— if the accidents are minor, claims will be less. Correct

C. Marketing the new policy to younger drivers with no history of automobile accidents—not for younger drivers, irrelevant

D. Marketing the new policy to younger drivers with some history of automobile accidents— irrelevant

E. Marketing the new policy to older drivers who were rejected by other companies for similar policies—they are already a trouble. Incorrect
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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26 Apr 2018, 11:32
A. Marketing the new policy to older drivers with a history of automobile accidents of any type
This may lead to more damages and more expenses to the company

B. Marketing the new policy to older drivers with a history of minor automobile accidents only
this is a good strategy.Policy purchases will increase and expenses will decrease. Correct

C. Marketing the new policy to younger drivers with no history of automobile accidents

D. Marketing the new policy to younger drivers with some history of automobile accidents
Same as C

E. Marketing the new policy to older drivers who were rejected by other companies for similar policies
This might work, but we do not know about drivers' accident record. Cannot decide on the expenses
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Re: Nationside, an insurance company, is considering issuing a new policy  [#permalink]

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20 Aug 2019, 01:38
b9n920 wrote:
Nationside, an insurance company, is considering issuing a new policy to insure automobile drivers who are elderly and have a record of car accidents. If premiums for the new policy are inappropriately high for a potential customer, that customer will not opt for the new policy. Therefore, Nationside 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 maximize Nationside's profits from the new policy?

A. Marketing the new policy to older drivers with a history of automobile accidents of any type

B. Marketing the new policy to older drivers with a history of minor automobile accidents only

C. Marketing the new policy to younger drivers with no history of automobile accidents

D. Marketing the new policy to younger drivers with some history of automobile accidents

E. Marketing the new policy to older drivers who were rejected by other companies for similar policies

OFFICIAL EXPLANATION:

Reading the question: this prompt presents a fairly weak argument; the many vulnerabilities are potentially distracting. But we are asked something rather specific: which strategy will maximize profits in the new policy. It looks like we might be able to largely ignore the conclusion of the argument and focus on a critical detail. It's a perfect example of why we should keep an eye on the question stem while digesting the prompt.

Creating a filter: the phrase "most likely" is a case of logical understatement in the argument. We can prove by stronger terms and look for what's critical. That's maximizing profits. Profits are revenues minus costs, so our strategy will maximize profits and/or minimize costs. A fact is that the drivers are elderly and accident-having. They sound expensive to insure, but we can't change that parameter. We can at least hope they have minimal accidents. Let's take that prediction as our filter to the answer choices.

Applying the filter: Our prediction exists in the form of answer choice (B). Choices (C) and (D) argue with the facts: this policy is for elderly drivers. Choice (A) describes an option that will cost more than (B), since Nationside will have to pay out more to cover accidents, so it's only better if we can jack up the revenues in (A) much higher than in (B). But the second sentence of the argument implies that we can't do that. So (A) is objectively inferior to (B) and is out. Choice (E) is similar to (A): if the drivers were rejected by other policies, it's probably because they are more expensive. Or, if that's outside knowledge that we're not supposed to bring to bear on this question, (E) is simply irrelevant.

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Re: Nationside, an insurance company, is considering issuing a new policy   [#permalink] 20 Aug 2019, 01:38
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