Final answer:
Misrepresentation or insurance fraud occurs when an insurance agent creates contracts that differ from the actual policy issued, which is against the fundamental principles of insurance.
Step-by-step explanation:
When an insurance agent knowingly permits or offers to make, or makes any contract of insurance, or agreement regarding such a contract differently than what is expressed in the issued contract, it is considered a fraudulent insurance practice. This can be referred to as misrepresentation or insurance fraud. Such actions can lead to legal consequences and are against the fundamental principles of insurance where contracts must be clear, fair, and understandable. An actuarially fair insurance policy ensures that the premiums paid are equivalent to the average benefits received, which aligns with the fundamental law of insurance. In these cases, moral hazard is also a concern, as insured individuals might not take the same precautions to avoid risks since they feel protected by the insurance coverage .