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# QOTD: Pro-Tect Insurance Company has recently been

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MBA Section Director
Joined: 19 Mar 2012
Posts: 5137
Location: India
GMAT 1: 760 Q50 V42
GPA: 3.8
WE: Marketing (Non-Profit and Government)
QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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07 Sep 2017, 12:56
1
8
00:00

Difficulty:

25% (medium)

Question Stats:

76% (01:30) correct 24% (01:56) wrong based on 492 sessions

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Verbal Question of The Day: Day 99: Critical Reasoning

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Pro-Tect Insurance Company has recently been paying out more on car-theft claims than it expected. Cars with special antitheft devices or alarm systems are much less likely to be stolen than are other cars. Consequently Pro-Tect, as part of an effort to reduce its annual payouts, will offer a discount to holders of car-theft policies if their cars have anti-theft devices or alarm systems.

Which of the following, if true, provides the strongest indication that the plan is likely to achieve its goal?

(A) The decrease in the risk of car theft conferred by having a car alarm is greatest when only a few cars have such alarms.
(B) The number of policyholders who have filed a claim in the past year is higher for Pro-Tect than for other insurance companies.
(C) In one or two years, the discount that Pro-Tect is offering will amount to more than the cost of buying certain highly effective antitheft devices.
(D) Currently, Pro-Tect cannot legally raise the premiums it charges for a given amount of insurance against car theft.
(E) The amount Pro-Tect has been paying out on car theft claims has been greater for some models of car than for others.

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Re: QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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07 Sep 2017, 12:58
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The question stem itself asks us to evaluate Pro-Tect's plan, so let's make sure that we're 100% clear about the language of that plan. The plan is to "offer a discount to holders of car-theft policies if their cars have anti-theft devices or alarm systems." The goal of this plan is "to reduce [Pro-Tect's] annual payouts [on car theft claims]."

"Cars with special anti-theft devices or alarm systems are much less likely to be stolen than are other cars." Pro-Tect wants its policy-holders to install anti-theft devices or alarm systems (if they don't already have such devices/systems) in order to decrease the likelihood that those policy-holders will have their cars stolen. This, in turn, should reduce car theft claims and, thus, reduce Pro-Tect's annual payouts on car theft claims.

So, which of the answer choices provides the strongest indication that the plan is likely to achieve its goal of reducing Pro-Tect's annual payouts?

Quote:
(A) The decrease in the risk of car theft conferred by having a car alarm is greatest when only a few cars have such alarms.

This statement suggests that the effectiveness of car alarms actually DECREASES as the number of cars equipped with such alarms increases. Thus, even if the discount encourages some of Pro-Tect's customers to install car alarms, the security benefit of installing such an alarm might decrease with each successive installation. This statement doesn't suggest that Pro-Tect's plan will fail, but it certainly doesn't provide a strong indication that the plan will succeed. Eliminate (A).

Quote:
(B) The number of policyholders who have filed a claim in the past year is higher for Pro-Tect than for other insurance companies.

We are not interested in comparing Pro-Tect to other insurance companies. We only want to know whether the discount is likely to reduce annual payments on car theft claims. Choice (B) does not provide a strong indication either way and can be eliminated.

Quote:
(C) In one or two years, the discount that Pro-Tect is offering will amount to more than the cost of buying certain highly effective anti-theft devices.

In order for Pro-Tect's plan to work, at least some of the policy-holders who currently do not have an anti-theft device or alarm system must decide to install such a device or system because of the discount. If the cost of anti-theft devices is very high relative to the size of the discount, the discount might not be enough to encourage policy-holders to buy such devices. Choice (C) tells us that the devices would "pay for themselves" after only a year or two and, thus, that customers who install such devices will save money each successive year. The fact that customers would have a financial incentive to install such devices provides a strong indication that the plan will achieve its goal. Keep choice (C).

Quote:
(D) Currently, Pro-Tect cannot legally raise the premiums it charges for a given amount of insurance against car theft.

We want to know whether the proposed discount is likely to reduce annual payments on car theft claims, and this has nothing to do with the cost of insurance premiums. Choice (D) is irrelevant and can be eliminated.

Quote:
(E) The amount Pro-Tect has been paying out on cartheft claims has been greater for some models of car than for others.

The proposed plan has nothing to do with car models. Choice (E) does not suggest whether the plan will achieve its goal, so (E) can be eliminated.

Choice (C) is the best answer.
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Intern
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Re: QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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Updated on: 07 Sep 2017, 19:44
C. The amount of discount exceeds the amount invested on anti-theft devices in one or two years. This will ensure that the insurance holders with anti-theft devices installed are profited and are provided with an incentive to buy the anti-theft devices. Thus, the insurance company plan will work.

Posted from my mobile device

Originally posted by suryaaparna on 07 Sep 2017, 15:06.
Last edited by suryaaparna on 07 Sep 2017, 19:44, edited 1 time in total.
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Joined: 06 Apr 2016
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Re: QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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07 Sep 2017, 18:54
I think the answer should be Option A as it talks about the profit of insurance company .

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Joined: 27 Jun 2015
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WE: Information Technology (Computer Software)
Re: QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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07 Sep 2017, 19:41
IMO its C because, if the discount amount is going to be more than the cost of anti theft system, people will buy the anti theft system.
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Re: QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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07 Sep 2017, 20:31
Conclusion :Consequently Pro-Tect, as part of an effort to reduce its annual payouts, will offer a discount to holders of car-theft policies if their cars have anti-theft devices or alarm systems.
Ans:C

B: No one is concerned about other policy makers
C:If the discount is more then the customers will have incentive to buy the anti theft devices.
D: Nothing to do with premium
E: Not to do with model of cars
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QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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10 May 2018, 09:34
GMATNinja VeritasPrepKarishma

Quote:
(A) The decrease in the risk of car theft conferred by having a car alarm is greatest when only a few cars have such alarms.

Do you agree that (A) is a correct weakener choice for the plan to fail ?
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Re: QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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10 May 2018, 23:04
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GMATNinja VeritasPrepKarishma

Quote:
(A) The decrease in the risk of car theft conferred by having a car alarm is greatest when only a few cars have such alarms.

Do you agree that (A) is a correct weakener choice for the plan to fail ?

I wouldn't say so. "a few cars" is a very vague term. What if market share of Pro-tect is only 1% of all cars? Then even if all clients of Pro-tect get anti theft alarms, they should be "a few" and hence the anti-theft device should be effective.
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QOTD: Pro-Tect Insurance Company has recently been [#permalink]

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01 Jun 2018, 02:54
Pretty straightforward!

From customers point of view if he is paying a premium of \$100 and only getting a car insurance vis-a-vis he paying \$ 90 and getting the same car insurance which he was getting in \$100 plus one of the best anti theft device for FREE then surely the customer will choose an option which gives him more by paying something less for the same thing plus an extra free bee.

Option C does capture this reasoning beautifully!!
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QOTD: Pro-Tect Insurance Company has recently been   [#permalink] 01 Jun 2018, 02:54
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