What term refers to the expensive and inefficient process of insuring low-severity small claims?

What term refers to the expensive and inefficient process of insuring low-severity small claims?

• A. Dollar cost averaging
• B. Stair-stepping
• C. Dollar trading
• D. Claim costs offset

Answer: (C)

The concept tested is the inefficiency of handling many small, low-severity claims because the fixed costs of processing each claim can exceed the claim’s value. The term that best captures this situation is dollar trading, which describes the expensive, transaction-heavy practice of dealing with numerous tiny claims. In other words, the administrative and claim-handling costs don’t scale down nicely with small claim amounts, making the overall process inefficient. Dollar cost averaging is an investment strategy for spreading out purchases, not about insurance claims. Stair-stepping isn’t a standard term used for claim handling in this context, and claim costs offset refers to balancing costs in a different, less precise way.

The concept tested is the inefficiency of handling many small, low-severity claims because the fixed costs of processing each claim can exceed the claim’s value. The term that best captures this situation is dollar trading, which describes the expensive, transaction-heavy practice of dealing with numerous tiny claims. In other words, the administrative and claim-handling costs don’t scale down nicely with small claim amounts, making the overall process inefficient.

Dollar cost averaging is an investment strategy for spreading out purchases, not about insurance claims. Stair-stepping isn’t a standard term used for claim handling in this context, and claim costs offset refers to balancing costs in a different, less precise way.