Pro-Tect Insurance Company has recently been paying out more on car-theft claims than it expected. Cars with special antitheft devices...

GMAT Critical Reasoning : (CR) Questions

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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?

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

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

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.

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

The amount Pro-Tect has been paying out on car theft claims has been greater for some models of car than for others.

Solution

Passage Analysis:

Text from Passage	Analysis
Pro-Tect Insurance Company has recently been paying out more on car-theft claims than it expected.	What it says: Pro-Tect is losing more money than planned on car theft claims What it does: Sets up the problem that needs solving What it is: Author's background information Visualization: Expected payouts: $100,000 vs Actual payouts: $150,000
Cars with special antitheft devices or alarm systems are much less likely to be stolen than are other cars.	What it says: Anti-theft devices significantly reduce car theft risk What it does: Provides key evidence about how to prevent the problem mentioned earlier What it is: Factual premise Visualization: Cars with alarms: 5% theft rate vs Cars without alarms: 25% theft rate
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.	What it says: Pro-Tect will give discounts to customers with anti-theft devices to cut costs What it does: Combines the problem and solution into Pro-Tect's specific plan What it is: Author's conclusion about the company's strategy Visualization: Regular premium: $500 vs Discounted premium: $400 (for cars with anti-theft devices)

Argument Flow:

The argument moves from identifying a financial problem (higher than expected theft claims) to presenting a factual solution (anti-theft devices reduce theft) to announcing a specific business plan (offer discounts for anti-theft devices).

Main Conclusion:

Pro-Tect will offer discounts to policy holders with anti-theft devices as a strategy to reduce their annual claim payouts.

Logical Structure:

The plan relies on the logic that if anti-theft devices reduce theft (premise), then encouraging customers to use them through discounts should reduce the number of theft claims Pro-Tect has to pay out.

Prethinking:

Question type:

Strengthen - We need to find information that would make us more confident that Pro-Tect's discount plan will actually reduce their annual payouts on car-theft claims.

Precision of Claims

The key claim is about activity and outcome - that offering discounts for anti-theft devices will reduce Pro-Tect's annual payouts. We need to consider the behavioral and financial dynamics involved.

Strategy

For this strengthen question, we need to think about what could make Pro-Tect's plan more likely to succeed. The plan assumes that giving discounts will somehow reduce payouts, but there are several gaps we need to bridge. We should look for scenarios that:

Show the discount will actually influence customer behavior to get anti-theft devices,
Demonstrate that the cost savings from fewer thefts will outweigh the revenue loss from discounts, or
Address potential loopholes in the plan's logic.

Answer Choices Explained

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 choice actually suggests that as more people adopt alarms (which Pro-Tect wants to encourage), the effectiveness of alarms decreases. This would weaken rather than strengthen the plan, since widespread adoption would reduce the anti-theft benefits.

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

This tells us about Pro-Tect's current situation compared to competitors but doesn't indicate whether their discount plan will succeed. Higher claim rates don't make the discount strategy more or less likely to work.

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.

This directly strengthens the plan by showing that customers will have a strong financial incentive to install anti-theft devices. When the accumulated discount exceeds the device cost, customers essentially get paid to protect their cars, making widespread adoption likely and thus reducing Pro-Tect's claims.

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

This explains why Pro-Tect might choose discounts over premium increases, but it doesn't indicate whether the discount approach will actually reduce payouts. It's background information that doesn't strengthen the plan's likelihood of success.

The amount Pro-Tect has been paying out on car theft claims has been greater for some models of car than for others.

This provides information about claim variation by car model but doesn't suggest that offering discounts for anti-theft devices will reduce overall payouts. It's descriptive data that doesn't support the plan's effectiveness.

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