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Technically a given category of insurance policy is under priced if

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New post 09 Oct 2015, 03:28
Sometimes, there is a clue/ key word in the conclusion statement which, depending on weakening/strengthening cases, directly correlates to its matching pair in the answer choices. So trying to find such a pair saves time ( of course it is not always advisable).

Here, the conclusion says: "represent a net loss in every case. "

And the answer choice E has its complementary keyword: "The claims against at least some under priced"

So, once such a pair is found, we can quickly check its validity and more often than not, it is THE answer.
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New post 15 Oct 2015, 00:53
D is basically a shell game. We are talking about policies. We are not talking about the company's profit.

I used Assumption Negation Technique (by MGMAT) here. Just negate the answer choice. If it weakens (actually destroys) the argument as a whole then you have the correct answer.

(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.

Negating (E):
(E) The claims against at least some under priced policies require paying out all of the premium income from those policies as soon as it is earned. --- Then there's no way the company could invest that premium to make an income, right?

Actually, when I was reading I was pre-thinking and I came up with another assumption --- that all investments are GUARANTEED to make an income. This is not the case. What if the investment turns south?

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Re: Technically a given category of insurance policy is under priced if  [#permalink]

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New post 24 Nov 2015, 19:02
Thoughtosphere wrote:
nitya34 wrote:
Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits.
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.



The statement says that a policy is under priced if the claims associated with it exceed the total income, then it states that the premium can be invested and it will yield returns of its own.

The first assumption that came to my mind is that every premium that is deposited is invested and that every deposited premium gives returns.

A - The statement doesn't talk about how the customers are attracted
B - The cases are not discussed
C - This answer could have been a better trap, had the word "accuracy" not used in it.
D - This is another trap. The statement didn't talk about the profits of the insurance companies.
E - That's the answer. It matches the initial assumption I had. This is a finely worded answer. It has used "SOME", which means that the range of policies is from one to all.

E


Why did you eliminate C just bcoz accuracy was mentioned in it? I thought, if they are able to estimate the level of claims then they would set the premium accordingly so that after investing the premium, they will get a net profit. If level of claims are high, they may set high premium.
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New post 22 Sep 2017, 00:07
Ella02 wrote:
So difficul :/ I do not 7nderstand it



(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned. If the claims request to pay out all of the premium income, then those income could not be used to invest and thus will sure post a net loss in every case. This is correct assumption.
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New post 27 Oct 2017, 03:05
mohnish104 wrote:
the key to this question are the words "not in every case". so we are not actually looking for most cases or many cases. usually the words 'at least some' throw us off the hook. In this case at least some is sufficient and thats what we are looking for. and hence the answer is E.


i discarded option E because of the word sometimes. But u correctly mentioned the key here is not in every case.
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New post 05 Dec 2017, 11:21
Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies. -We are concerned about the loss and not about consumer attraction.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case. -This reverses the causality.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. -Okay? out of scope
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits. - Most important?
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned. -Correct. If we don't need to pay the claims we can invest that money and make some profit.
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New post 08 Jan 2018, 04:41
samichange wrote:
MBAisaMYTH wrote:
nitya34 wrote:
Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits.
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.

Need Explanations





I feel we need to revisit option B :

According to GMAT, If the argument says A --> B, then the argument safely assumes that B -/-> A.
Using the same logic, wouldnt B be the correct choice.

Please help me understand this.



There is no causality in the argument.

Conclusion- an under priced policy does not represent a net loss in every case.

an Under priced Policy =either a Net loss policy OR a NO Net loss policy

Option B -A policy that represents a net loss to the insurance company is not an under priced policy in every case

Net loss policy = either Under priced policy OR NOT an Under priced policy

Now do you think that option B is necessary for the conclusion!!!

I hope the above helps.

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IF we Negate Option B. Then it breaks the conclusion ?
Negation of Option B - A policy that represents a net loss to the insurance company is an underpriced policy in every case.
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New post 06 Feb 2018, 22:49
Why not B is an answer?
If you negate B then we get
A policy that represents a net loss to the insurance company is an under priced policy in every case
This implies that net loss policy = under prices and weakens the conclusion. So B should be the answer.

Also, we negate E then we get
(E) The claims against none under priced policies do not require paying out all of the premium income from those policies as soon as it is earned
So, it actually strengthens the conclusion and hence its not the valid assumption.
I am using negation logic as follows
At least some - none (negate)

Experts,
Please let me know what am I missing?
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New post 16 Feb 2018, 10:21
Clear E.

For assumption, we need to focus on the conclusion that is an underpriced policy does not always indicate a net loss. Why? Because the premiums can be invested to make money by the company and hence avoid net loss.
A. Exaggerated and extreme option. Plus it does nothing for the conclusion. Incorrect.
B. Tricky one here. On a closer look, this is a "reverse order" statement presented only to confuse the reader. The "net loss" policies is a smaller category of the bigger category of "underpriced" policies. The former can very well be overlapping with other categories, say, overpriced category that can result in loss maybe. Hence hold for better option to come along.
C. Not relevant, not required for our conclusion to hold true.
D. Again, not really hitting our conclusion when negated.
E. Correct, since if all premiums are to be paid out how would they be invested to earn returns and avoid net loss? Goes with our conclusion and required for conclusion to make sense.
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New post 23 Apr 2018, 04:32
This is really tough one. Under priced insurance policy = claims against it plus expenses associated with it exceed total income from premiums, think as company not consumer. I started thinking this question as consumer and could not make things. So for same period if company invest same base price, then it can get returns on it. and may be that is profitable for them. now these returns will come in time, some years. longer the duration, more profitable company will be.

Pre-thinking: We need to find the assumption for which Conclusion holds true. let say that someone have an insurance and with in few days or in a month someone had claim for it. will company can have any kind of profit from it. What if all start doing this, company will not even survive. This should be the assumption.


The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies. ---- that is a bad move.

(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case. --- might be true but negation will not hold true.

(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. ---- So ? irrelevant

(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits. ---- is that only one. What if no claim made ever? many loop holes in this choice.

(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned. --- same on the line of pre-thinking.
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