Final answer:
Charging different rates for individuals of the same class and life expectancy represents unfair discrimination. Actuarially fair premiums reflect individual risk, which can lead to high costs for high-risk individuals and discourage insurance purchase. Charging the group as a whole could lead to lower-risk individuals subsidizing higher-risk ones. The correct option is C.
Step-by-step explanation:
Charging a different rate for individuals of the same class and life expectancy is an example of unfair discrimination. If insurance premiums are set at actuarially fair levels, it means individual rates would reflect the actual risk associated with insuring a person.
High-risk individuals, such as those with a chronic disease or who are elderly, would face high premiums, which could lead to them opting not to purchase insurance at all, making the insurance pool less representative of the actual risk.
If an insurance company tries to charge an actuarially fair premium to the group as a whole, rather than to each group separately, it would result in some individuals subsidizing others, leading to potential market imbalances. Those in lower-risk groups could end up paying disproportionately high premiums, which is also not in line with the principle of actuarial fairness.
Hence, Option C is correct.