Final answer:
The concept associated with Weiss and Fitch is Credit Rating, which assesses the creditworthiness of insurance companies. If an insurance company charges a single actuarially fair premium for all instead of risk-specific premiums, it risks financial instability due to adverse selection. Insurers need to evaluate premiums based on risk groups and actuarial fairness to ensure sustainability. The correct option is C) Credit Rating
Step-by-step explanation:
The insurance concept associated with the names Weiss and Fitch is C) Credit Rating. These firms, along with others like Moody's and Standard & Poor's, are renowned for their financial services, including the assessment of the creditworthiness of insurance companies among other entities. Credit ratings are crucial for insurers as they affect the perceived stability of the company and can thus impact customer trust and business prospects.
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 encounter issues. The actuarially fair premium is meant to be representative of the individual or group risk levels. Charging a single group premium disregards the variations in risk among different groups, which can lead to adverse selection, with lower-risk individuals feeling overcharged and possibly opting out, and higher-risk individuals being undercharged, which could lead to unsustainable losses for the insurance company.
Furthermore, it is important to understand that risk groups and actuarial fairness are essential concepts in the insurance industry. These concepts help insurers to calculate premiums that are commensurate with the risks they cover. This approach ensures that over time, the premiums collected cover claims, and company costs, and still yield profits while catering to groups with different risk profiles.
The correct option is C) Credit Rating