Final answer:
An insurance company attempting to settle a claim based on an altered application without the insured's consent is engaging in an unfair claims practice, which is true. Actuarily fair premiums must reflect the risk of the insured individual or group to prevent moral hazards and ensure equity.
Step-by-step explanation:
It is true that an insurance company attempting to settle a claim on the basis of an application that was altered without the knowledge and consent of the insured is engaging in an unfair claims practice. Insurance contracts are based on a mutual agreement, and any alterations to the agreement without the consent of both parties would be a breach of this agreement and considered unfair and deceptive.
When dealing with insurance premiums and risk groups, companies typically set premiums based on actuarial science, which takes into account the specific risk profiles of individuals or groups. An actuarially fair premium is one where, on average, the amount paid in by a person or group is equal to the benefits received. If an insurance company charges an actuarially fair premium to the group as a whole rather than assessing each group separately, it risks undercharging high-risk members and overcharging low-risk members, possibly leading to a moral hazard where insured parties may take less care to avoid risks they are insured against because they know the insurance will cover the costs.