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A Discussion of Discrimination and Fairness in Insurance Pricing

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Listed:
  • Mathias Lindholm
  • Ronald Richman
  • Andreas Tsanakas
  • Mario V. Wuthrich

Abstract

Indirect discrimination is an issue of major concern in algorithmic models. This is particularly the case in insurance pricing where protected policyholder characteristics are not allowed to be used for insurance pricing. Simply disregarding protected policyholder information is not an appropriate solution because this still allows for the possibility of inferring the protected characteristics from the non-protected ones. This leads to so-called proxy or indirect discrimination. Though proxy discrimination is qualitatively different from the group fairness concepts in machine learning, these group fairness concepts are proposed to 'smooth out' the impact of protected characteristics in the calculation of insurance prices. The purpose of this note is to share some thoughts about group fairness concepts in the light of insurance pricing and to discuss their implications. We present a statistical model that is free of proxy discrimination, thus, unproblematic from an insurance pricing point of view. However, we find that the canonical price in this statistical model does not satisfy any of the three most popular group fairness axioms. This seems puzzling and we welcome feedback on our example and on the usefulness of these group fairness axioms for non-discriminatory insurance pricing.

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  • Mathias Lindholm & Ronald Richman & Andreas Tsanakas & Mario V. Wuthrich, 2022. "A Discussion of Discrimination and Fairness in Insurance Pricing," Papers 2209.00858, arXiv.org.
    • Handle: RePEc:arx:papers:2209.00858
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    References listed on IDEAS

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    1. Lindholm, M. & Richman, R. & Tsanakas, A. & Wüthrich, M.V., 2022. "Discrimination-Free Insurance Pricing," ASTIN Bulletin, Cambridge University Press, vol. 52(1), pages 55-89, January.
    2. Mario V. Wuthrich & Michael Merz, 2015. "Stochastic Claims Reserving Manual: Advances in Dynamic Modeling," Swiss Finance Institute Research Paper Series 15-34, Swiss Finance Institute.
    3. R Guy Thomas, 2012. "Non-Risk Price Discrimination in Insurance: Market Outcomes and Public Policy," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 37(1), pages 27-46, January.
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    Cited by:

    1. Boonen, Tim J. & Liu, Fangda, 2022. "Insurance with heterogeneous preferences," Journal of Mathematical Economics, Elsevier, vol. 102(C).
    2. Calcetero Vanegas, Sebastián & Badescu, Andrei L. & Lin, X. Sheldon, 2024. "Effective experience rating for large insurance portfolios via surrogate modeling," Insurance: Mathematics and Economics, Elsevier, vol. 118(C), pages 25-43.

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