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Discrimination-free insurance pricing

Lindholm, M., Richman, R., Tsanakas, A. ORCID: 0000-0003-4552-5532 & Wüthrich, M. V. (2021). Discrimination-free insurance pricing. Astin Bulletin: The Journal of the ASTIN and AFIR Sections of the International Actuarial Association, doi: 10.1017/asb.2021.23

Abstract

We consider the following question: given information on individual policyholder characteristics, how can we ensure that insurance prices do not discriminate with respect to protected characteristics, such as gender? We address the issues of direct and indirect discrimination, the latter resulting from implicit learning of protected characteristics from non-protected ones. We provide rigorous mathematical definitions for direct and indirect discrimination, and we introduce a simple formula for discrimination-free pricing, that avoids both direct and indirect discrimination. Our formula works in any statistical model. We demonstrate its application on a health insurance example, using a state-of-the-art generalized linear model and a neural network regression model. An important conclusion is that discrimination-free pricing in general requires collection of policyholders’ discriminatory characteristics, posing potential challenges in relation to policyholder’s privacy concerns.

Publication Type: Article
Additional Information: This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Publisher Keywords: Causal inference, differentiation, direct discrimination, discriminatory covariates, indirect discrimination, individual policy characteristics, insurance pricing, proxy discrimination
Subjects: H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
Departments: Bayes Business School > Actuarial Science & Insurance
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