Final answer:
The agent offering to waive prospective client's first life insurance premium is engaging in practice of rebating.
Step-by-step explanation:
An agent offering to waive the prospective client's first life insurance premium is engaging in rebating. Rebating in the insurance industry refers to the practice of giving a part of the agent's commission or company's profit back to the policyholder as an inducement to purchase the policy. This practice is often considered an unfair trade practice as it can lead to unfair competition and may not be allowed in many jurisdictions.
If an insurance company tries to charge the actuarially fair premium to the group as a whole rather than to each group separately, the company may face the risk of adverse selection. Actuarially fair premium means charging a rate that is accurately reflective of the expected claims and administrative costs for a specific risk group. When premiums are not individually tailored, those with lower risk may find the premium too high and opt-out, leaving a higher concentration of high-risk individuals, which could result in financial losses for the company.