Final answer:
The first named insured is responsible for all premium payments. If an insurance company charges an actuarially fair premium to a combined group without accounting for individual risk factors, it risks financial losses due to adverse selection. Separate risk assessments are essential for pricing insurance premiums correctly to maintain profitability.
Step-by-step explanation:
The individual responsible for the payment of all premiums is b. the first named insured. This is a standard term used in insurance policies to refer to the individual who has primary responsibility for maintaining the insurance coverage, including paying the premiums and managing the policy.
In the context of an insurance company trying to charge the actuarially fair premium to the group as a whole rather than to each group separately, there will be ramifications. If an insurance company calculates premiums without accounting for different risk factors, such as family health histories, they may set a premium that is not appropriate for the true risk profile of the group. This could lead to an adverse selection, where higher-risk individuals are more likely to purchase insurance, while lower-risk individuals opt out, finding the premium too high for their risk level.
For the insurance company, this results in a higher likelihood of claims than expected, which could lead to financial losses. Therefore, to remain solvent and profitable, insurers must assess and price the risk as accurately as possible, often by segmenting groups according to their risk factors and charging them an actuarially fair premium that reflects their specific risk.