Discriminating Data: How AI Can Vanquish Bias

Insurance is the business of assessing risks and pricing policies to match. As no two people are entirely alike, that means treating different people differently. But how to segment people without discriminating unfairly?

Thankfully, no insurer will ever use membership in a “protected class” (race, gender, religion…) as a pricing factor. It’s illegal, unethical and unprofitable.
But, while that sounds like the end of the matter, it’s not.

Take your garden-variety credit score. Credit scores are derived from objective data that don’t include race and are highly predictive of insurance losses.

What’s not to like? Indeed, most regulators allow the use of credit-based insurance scores, and in the U.S. these can affect your premiums by up to 288%.

But it turns out there is something not to like: Credit scores are also highly predictive of skin color, acting in effect as a proxy for race. For this reason, California, Massachusetts and Maryland don’t allow insurance pricing based on credit scores.