Home insurance premiums are typically set after an appraiser assigns

Question

Home insurance premiums are typically set after an appraiser assigns an official assessed value. Reassessments should be frequent in order to remove distortions that arise when property value changes at differential rates. In actual fact, however, properties are reassessed only when they stand to benefit the insurance company. In other words, a reassessment takes place when the most likely outcome is in increase in insurance premiums to the homeowner.

Which of the following, if true, describes a situation in which a reassessment should occur but in unlikely to do so?

A. Property values have risen sharply and uniformly.
B. Property values have risen everywhere – some very sharply, some moderately.
C. Property values have on the whole risen sharply; yet some have dropped slightly.
D. Property values have on the whole dropped significantly; yet some have risen slightly.
E. Property values have dropped significantly and uniformly.

hloonker · Answer

Home insurance premiums are typically set after an appraiser assigns an official assessed value. Reassessments should be frequent in order to remove distortions that arise when property value changes at differential rates. In actual fact, however, properties are reassessed only when they stand to benefit the insurance company. In other words, a reassessment takes place when the most likely outcome is in increase in insurance premiums to the homeowner.

Which of the following, if true, describes a situation in which a reassessment should occur but in unlikely to do so?

A. Property values have risen sharply and uniformly.
B. Property values have risen everywhere – some very sharply, some moderately.
C. Property values have on the whole risen sharply; yet some have dropped slightly.
D. Property values have on the whole dropped significantly; yet some have risen slightly.
 E. Property values have dropped significantly and uniformly.

E is the correct answer - as a reassessment is unlikely to be made here because the most likely outcome in a situation where the fall in prices of asset has been uniform across markets, leaving no room of doubt when an assessment actually happens. Option D is a redherring as the lack of uniformity creates doubt and the likeliness of a outcome (eitherways) gets pushed in favor of the Insurance bros.

MuskaanMittal · Answer

Not able to understand why D is correct answer

anurag029 · Answer

Can someone please explain why D is the correct option here?

pranavnb · Answer

I was initially confused between D and E but rejected E for 2 reasons
1) I am always skeptical of extreme options
2) incase that all of the property prices decreased the insurance company would have no choice but to reassess the premiums but that does not feel like the case in D

Chakrawarty · Answer

Can someone explain why D is correct?

dhruvvvvvv · Answer

My take on the question

E is incorrect as reassessments are most frequently done to remove distortions that arise when property value changes AT DIFFERENT RATES. Uniform decline would happen pervasively to all properties.

Option D has property value changing at different rates while MOST have dropped significantly. Hence insurance would not stand to benefit even though a reassessment is required.

wandererCA · Answer

The reason why option D is correct is because the question says that reassessment is done when there is differential rates. E should have been the correct answer because in that case insurance company looses most. However since question explicitly mentions that reassessment is done only when there are different rates that is some prices are up and some are down so option D would be apt. Still I would like to tell this question as trap.

uykumfirarda · Answer

IMO: The answer is D because the question simply asks 'a situation in which a reassessment should occur but in unlikely to do so'. The exact word 'unlikely' did play a great role in my evaluation as E reflects a situation that houses are definitely not going to be reassessed.

GMATcracker101 · Answer

When do reassessments occur?  When   property value changes at differential rates.

When are properties reassessed?  Only when they stand to benefit the insurance company. In other words, a reassessment takes place when the most likely outcome is an increase in insurance premiums to the homeowner.

A. Property values have risen sharply and uniformly.  INCORRECT. property value changes are uniform and not differential hence not this.  
B. Property values have risen everywhere – some very sharply, some moderately.  INCORRECT. Property values have increased, if the properry value has increased then the insurance premium will increase as well, hence reassessment will take place.  
C. Property values have on the whole risen sharply; yet some have dropped slightly.  INCORRECT.  
D. Property values have on the whole dropped significantly; yet some have risen slightly.  CORRECT. As in this case reassessments should occur due to differential rates, however since the values have dropped the premium will decrease and that does not benefit the insurance companies hence reassessment will not take place.   
E. Property values have dropped significantly and uniformly.  INCORRECT. property value changes are uniform and not differential hence not this.

Home insurance premiums are typically set after an appraiser assigns

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

Home insurance premiums are typically set after an appraiser assigns

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards