Final answer:
The subject of this question is Business, and it is asking about the actuarially fair premium for two groups of 50-year-old men with and without a family history of cancer and the impact of charging the actuarially fair premium to the group as a whole.
Step-by-step explanation:
The subject of this question is Business. The question is asking about the actuarially fair premium for two groups of 50-year-old men with and without a family history of cancer, and the impact of charging the actuarially fair premium to the group as a whole.
Actuarially fair premium refers to the premium amount that is calculated based on the risk of the insured population. It is determined using statistical data on mortality rates and likelihood of claims. If the insurance company were selling life insurance separately to each group, the actuarially fair premium for each group would be calculated based on the likelihood of death and the payout amount.
If the insurance company cannot find out about family cancer histories and is offering life insurance to the entire group, the actuarially fair premium for the group as a whole would be calculated by considering the overall mortality rate and payout amount.
If the insurance company charges the actuarially fair premium to the group as a whole rather than each group separately, it may face adverse selection. Some individuals in the low-risk group may decide not to purchase the insurance, while individuals in the high-risk group may be more likely to purchase the insurance since the premiums are not personalized to their specific risk.