Actuaries Tackle Race In Insurance Pricing

The Casualty Actuarial Society (CAS) has developed a series of papers examining the issue of race and insurance pricing and seeking to contribute constructively to the policy discussion around it.

‘Insurance pricing is a high-wire act,’ CAS says. Actuaries have to quantify and differentiate among a massive variety of risk variables while avoiding unfair discrimination. ‘As regulation and society’s understanding of discrimination evolve, however, it is necessary for us to keep abreast of changes in the manner in which discrimination is defined and adjudicated.’

The CAS research has generated four papers – two published this week, two more to be published on March 31 – that define, quantify, and propose methods for addressing unfair discrimination where it is found to exist.

Confusion around insurance rating is understandable, given the complex predictive models being used today, which can lead to inappropriate comparisons and inaccurate conclusions.

Algorithms and machine learning hold great promise for helping to ensure equitable pricing. However, research has shown these tools also can amplify biases that manage to creep into their programming.