BREAKING: Target Test Prep releases Brand New 2026 On Demand GMAT prep course

Redeem
TTP OnDemand GMAT Video Course
Featured Course

Target Test Prep GMAT OnDemand

Scott Woodbury-Stewart’s private virtual classroom — 400 hours of master-class video lessons for the GMAT Focus Edition.

  • 715+ score guarantee — highest in the industry (99th percentile)
  • 52 chapters · 1,500+ lessons · 4,000+ practice questions
  • 400 hours of video · 1,500+ instructor-led HD smartboard lessons
  • 300,000+ students accepted to Harvard, Stanford, Wharton, Booth & Sloan & more
  • 24/7 live support + weekly Zoom office hours with GMAT instructors
  • TTP AI Assist — 24/7 AI-powered virtual tutor for instant help
  • 1,200+ flashcards + AI-powered study assistant & daily calendar
  • OnDemand, LiveTeach & GMAT Bootcamp formats available
  • Also: GRE, SAT Math & Executive Assessment courses
  • MBA Admissions Consulting now available
  • 🏆 2025 EdTech Breakthrough Award: Test Prep Solution Provider of the Year
  • 200,000+ students served
  • 5-day free trial — $0 to start, no auto-billing, cancel anytime
★★★★★ 5.0 (559 reviews)
130-pt guarantee
$0 to start then $127/mo
Start Free 5-Day Trial Read 559 Reviews →

Insurance policies

Expert replies
Post new topic Post Reply
Previous Topic Next Topic
Senior | Next Rank: 100 Posts
Posts: 91
Joined: Tue Mar 31, 2009 11:19 amFollowed by: 1 member
by BlueDragon2010 » Mon Mar 10, 2014 8:10 pm
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
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Source: — Critical Reasoning |
User avatar
GMAT Instructor
Posts: 1052
Joined: Fri May 21, 2010 1:30 amFollowed by: 98 members
Thanked: 335 times

by Patrick_GMATFix » Mon Mar 10, 2014 8:23 pm
The right answer will provide a solution to the problem; it should provide a way to offer the elderly coverage while keeping premium payments low. The answer is A. I go through the question in detail in the full solution below (taken from the GMATFix App).

Image

-Patrick
  • Ask me about tutoring.
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY

GMAT/MBA Expert

User avatar
Elite Legendary Member
Posts: 10392
Joined: Sun Jun 23, 2013 6:38 pmFollowed by: 511 members
Location: Palo Alto, CA
Thanked: 2867 times
GMAT Score:800

by [email protected] » Tue Mar 11, 2014 12:17 am
Hi BlueDragon2010,

This CR question actually gives you a specific hint in the question stem itself: We're asked to find an answer that would MINIMIZE Company X's losses on the policies. With that goal in mind, we need to understand the logic that is presented in the prompt, THEN find a way to minimize the losses that are described.

The Facts:
-Company X is considering issuing a new policy that will cover services for diseases that affect elderly people (and will sell these policies to elderly people).
-Premiums for this policy must be low enough to attract customers.

The Conclusion:
-Company X is concerned that the income (from the premiums) will not be enough to pay for the claims that the elderly customers would make.

The Logic:
-Since this plan requires premiums to be low enough to attract customers, the company is concerned that it will LOSE MONEY on the policies (since elderly customers will make claims that will cost the insurance company more money than the policies brought in). We're asked to find a way to MINIMIZE LOSSES, so we need an answer that will do one (or both) of the following:
1) Bring in more money
2) Minimize claims that are submitted

Answer A provides a solution that would bring in more premiums and minimize the number of claims (at least in the short term).

GMAT assassins aren't born, they're made,
Rich
Contact Rich at [email protected]
Image
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Junior | Next Rank: 30 Posts
Posts: 25
Joined: Sun Sep 29, 2013 7:51 am

by swarnav999 » Thu Mar 13, 2014 4:21 am
Hi Rich,

I didnt get your point although you have explained it in detail. Actually, it would help if you could kindly explain the last two points that you mentioned and plug it into option A. Yhanks!
[email protected] wrote:Hi BlueDragon2010,

This CR question actually gives you a specific hint in the question stem itself: We're asked to find an answer that would MINIMIZE Company X's losses on the policies. With that goal in mind, we need to understand the logic that is presented in the prompt, THEN find a way to minimize the losses that are described.

The Facts:
-Company X is considering issuing a new policy that will cover services for diseases that affect elderly people (and will sell these policies to elderly people).
-Premiums for this policy must be low enough to attract customers.

The Conclusion:
-Company X is concerned that the income (from the premiums) will not be enough to pay for the claims that the elderly customers would make.

The Logic:
-Since this plan requires premiums to be low enough to attract customers, the company is concerned that it will LOSE MONEY on the policies (since elderly customers will make claims that will cost the insurance company more money than the policies brought in). We're asked to find a way to MINIMIZE LOSSES, so we need an answer that will do one (or both) of the following:
1) Bring in more money
2) Minimize claims that are submitted

Answer A provides a solution that would bring in more premiums and minimize the number of claims (at least in the short term).

GMAT assassins aren't born, they're made,
Rich
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Junior | Next Rank: 30 Posts
Posts: 13
Joined: Wed Sep 26, 2012 3:46 am

by sameer3105 » Sun Mar 23, 2014 1:42 am
The argument says "income from the policies would not be sufficient to pay for the claims that would be made".
Strategy: Increase income and if possible minimise claims>>Net profit increases.

Now consider a point where you can not minimize claims.You have to play on scale to increase your net profit.

Hence,(A) Attracting middle-aged customers unlikely to submit claims for benefits for many years
which serves both at one go.
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Newbie | Next Rank: 10 Posts
Posts: 1
Joined: Fri Jan 31, 2014 6:21 pm

by girishbp2 » Tue Nov 11, 2014 8:22 am
The main confusion is "Why would middle-aged customers buy the policy meant for the elderly?"

The Middle-aged people would want to buy this policy only as a contingency plan (for the future), Since, the argument talks about the diseases afflicting the elderly and not the middle-aged.

Now the strategy(reasoning) mentioned in answer choice A might seem a little far-fetched by GMAT standards (if one were to compare the indisputable reasoning in other GMAT CR Q's) BUT,since only ans choice A talks about increasing income (by adding a new profitable segment of customers to the existing segment(elderly segment)) without causing a major overhaul to its original strategy, only answer choice A can be correct.

Also the question states Most likely strategy, and not a absolutely workable strategy.

There are some more such type of Q's that can create confusion and the best way to tackle such Q's is by understanding which answer choice is more related to the facts of the argument and less far fetched than other choices.
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
Senior | Next Rank: 100 Posts
Posts: 90
Joined: Tue Aug 14, 2007 3:58 am
Thanked: 2 times

by kutlee » Wed Apr 01, 2015 1:59 am
girishbp2 wrote:The main confusion is "Why would middle-aged customers buy the policy meant for the elderly?"

The Middle-aged people would want to buy this policy only as a contingency plan (for the future), Since, the argument talks about the diseases afflicting the elderly and not the middle-aged.

Now the strategy(reasoning) mentioned in answer choice A might seem a little far-fetched by GMAT standards (if one were to compare the indisputable reasoning in other GMAT CR Q's) BUT,since only ans choice A talks about increasing income (by adding a new profitable segment of customers to the existing segment(elderly segment)) without causing a major overhaul to its original strategy, only answer choice A can be correct.

Also the question states Most likely strategy, and not a absolutely workable strategy.

There are some more such type of Q's that can create confusion and the best way to tackle such Q's is by understanding which answer choice is more related to the facts of the argument and less far fetched than other choices.
I think the option never said that middle aged customers would be enrolled to same policy (That is meant for elderly). It is quite possible that company has more profit making policies for middle aged people and make more revenue.
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
Master | Next Rank: 500 Posts
Posts: 145
Joined: Sun Mar 15, 2015 7:27 amFollowed by: 1 member
Thanked: 2 times

by src_saurav » Sat Apr 04, 2015 10:30 pm
Hi,Please explain why E is not an option.E says that only people able to pay for medical services should be sold the policies.This way their losses can be minimized as they will accept the low premiums and services it will provide.The A option says that middle aged people who will not submit claims for long should be targeted.I say what about the situation when they will actually claim for benefits ,will it be more or less?....Choice E seemed best to me.
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Post new topic Post Reply
• Page 1 of 1