Final answer:
The term 'Materiality' is used in the California Insurance Code to describe information important enough to influence policy premiums. If an insurer charges a group-based premium without individualized risk assessment, it could misprice risks and incur financial losses.
Step-by-step explanation:
According to the California Insurance Code, the term used to describe a fact so important it could affect the policy premium is b) Materiality. Materiality refers to the significance of information that would influence the judgment of a reasonable person about whether to enter into an insurance contract under certain terms including premium calculations. Therefore, if an insurance company charges the actuarially fair premium to the group as a whole, without considering individual group differences like family cancer histories, the premium may not accurately reflect the true risk associated with each subgroup. This can result in adverse effects such as inappropriate risk pricing and potential financial losses to the insurance company due to ineffectively assessed risks.