Final answer:
Underwriting is the process of analyzing personal information to decide on insurance issuance. Actuarial assessment helps set fair premiums for different risk groups or the entire group. Charging an average premium may result in moral hazard and adverse selection.
Step-by-step explanation:
The analysis of an applicant's personal information to determine whether insurance should be issued or declined is known as underwriting. In the context of providing life insurance, actuarial assessment is crucial in determining the fair premium for each risk group as well as the fair premium for the entire group without knowledge of family cancer histories. The premium calculation would consider the expected costs associated with each group and adjust the premiums accordingly. If only an average premium is charged to the entire group, this may lead to the problem of moral hazard, where individuals may engage in riskier behavior knowing they have insurance coverage, and adverse selection, where those with higher risk are more likely to purchase insurance, potentially leading to losses for the insurance company