In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a...
GMAT Critical Reasoning : (CR) Questions
In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average.
The conclusion above would be properly drawn if it were also true that in Argonia
Passage Analysis:
| Text from Passage | Analysis |
| In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. |
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| Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. |
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| Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average. |
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Argument Flow:
The argument starts by explaining Argonia's regulated insurance system, then reveals a key feature (rates don't depend on miles driven), and uses this to conclude that an unfair subsidy system exists.
Main Conclusion:
Low-mileage drivers in Argonia partially subsidize the insurance costs of high-mileage drivers.
Logical Structure:
The argument assumes that driving more miles increases accident risk and should mean higher insurance costs. Since everyone pays the same rate regardless of miles driven, low-risk drivers overpay while high-risk drivers underpay, creating a subsidy effect.
Prethinking:
Question type:
Assumption - We need to find what must be true for the conclusion to hold. The conclusion is that low-mileage drivers subsidize high-mileage drivers.
Precision of Claims
The argument makes claims about cost distribution (subsidization), risk correlation (distance driven), and payment structure (flat rates). We need to focus on what connects driving distance to insurance costs.
Strategy
To find assumptions, we need to identify what could break the conclusion while keeping the facts intact. The facts are: (1) everyone pays the same rate regardless of miles driven, (2) insurance companies make reasonable profit. The conclusion is that low-mileage drivers subsidize high-mileage drivers. For this to be true, there must be some connection between driving more miles and costing more to insure.
This choice discusses what happens when new drivers buy insurance and how it affects average rates. However, this doesn't address the core issue of whether low-mileage drivers subsidize high-mileage drivers. The conclusion is about the relationship between driving distance and cost distribution, not about new drivers entering the market. This choice is irrelevant to establishing the necessary assumption.
This establishes the crucial cost relationship that the argument assumes but never explicitly states. For the conclusion that low-mileage drivers subsidize high-mileage drivers to be valid, we need to know that high-mileage drivers actually cost more to insure than low-mileage drivers. If both groups cost the insurance companies the same amount, then having everyone pay the same rate wouldn't create any subsidy effect. This choice provides the missing link that makes the conclusion logically sound - it confirms that there is indeed a cost difference that justifies the subsidy claim.
This discusses age-based pricing, which is a completely different factor from mileage-based pricing. The argument is specifically about how driving distance affects cost distribution, not age. While age might be another factor insurance companies consider, it doesn't help establish whether mileage differences create the subsidy effect described in the conclusion.
This talks about what would happen to insurance company profits if they classified drivers by actual miles driven. However, the conclusion isn't about company profits - it's about whether a subsidy currently exists under the flat-rate system. What might happen under a different system doesn't help establish the necessary assumption for the current conclusion about subsidization.
This choice discusses drivers who have caused costly claims and their rates compared to other drivers. This is about past claims history, not about driving distance. The argument's conclusion specifically deals with mileage-based subsidization, so information about claims history doesn't provide the necessary assumption to support that particular conclusion.