Final answer:
Charging actuarially fair premium to the group as a whole may result in an unfair distribution of costs and subsidization of higher-risk groups by lower-risk groups.
Step-by-step explanation:
If an insurance company tries to charge the actuarially fair premium to the group as a whole rather than to each group separately, it may result in an unfair distribution of costs. The actuarially fair premium is determined based on the risk profile and expected claims of each individual or group. Charging the same premium to all groups within the contract may lead to some groups subsidizing others, which can create dissatisfaction and financial strain.
For example, let's say there are two groups in a group contract - Group A and Group B. Group A has a higher risk profile and expected claims compared to Group B. If the insurance company charges the same actuarially fair premium to both groups, Group B may end up subsidizing the higher costs of Group A.
In summary, charging the actuarially fair premium to the group as a whole instead of each group separately may result in an inequitable distribution of costs among the groups within the contract.