## Interview Question

Senior Business Manager Interview

-Richmond, VA

Capital One## Credit card insurance case: calculate break-even claim rate where response rate = 2%, fee charged = 1% of monthly balance, and average balance = $1,000 per month.

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## Interview Answers

8 Answers

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Don't think there's enough info here to solve. Response rate is 2%, but you need to know how much the marketing costs to be able to determine the breakeven.

devil in the details on

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I think the break even claim rate for this insurance scheme would be 1%. (Keeping all other non-mentioned costs aside) Let's assume 100 customers are contacted: 2% response rate = 2 people buy insurance. Revenue: 2 * (1% of 1000) = $20 At break even, cost would also be $20. Let the claim rate be x% (Note: this will be a percentage of the people who have bought the insurance, i.e. x% of 2% of 100) Insurance pay-out = $1000 per claim Cost: 1000 * x% of 2 = 1000 * x/100 * 2 = 20x Now, revenue = cost at break even, hence: $20 = 20x x = 1 So the B/E claim rate would be 1%.

AB on

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I am assuming that the marketing cost is $0.5 per mail. So, if 10000 people are sent mail, 2% respond i.e. 200 people revenue - fee charged * balance * no of people * 12(for a year) i.e. 1% * 1000 * 200 * 12 = 24000 cost- 0.5*10000 = 5000 for mailers lets say claim rate is c% so, c% * 1000 * 200 i.e. 2000c (claims are assumed yearly so no need to multiply by 12) so total cost = 5000 + 2000c in case of break even, revenue will be equal to cost. there for 5000 + 2000c = 24000 i.e. c = 9.5 or break even claim rate = 9.5%

yo on

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How did you come up to that answer? Thank you

amy on

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Can you please explain how you got to the break even claim rate?

S on

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Sorry - Could you elaborate on the answer. Assume a 100 customers. Claims rate = x. Interest revenue = (100-x)*1000*1% = 1000 - 10x Claims paid out = 2%*1000*x = 20x Breakeven scenario: 1000 - 10x = 20x => x = 33.3 Break even claim rate = 33.3% How did you get 9.5%. Am I misunderstanding the question?

?? on

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break-even claim rate = 9.5%

Anonymous on

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Yeah, this may be why you did not pass the final round

GG on

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