Discrimination-Free Insurance Pricing

Abstract

A simple formula for non-discriminatory insurance pricing is introduced. This formula is based on the assumption that certain individual (discriminatory) policyholder information is not allowed to be used for insurance pricing. The suggested procedure can be summarized as follows: First, we construct a price that is based on all available information, including discriminatory information. Thereafter, we average out the effect of discriminatory information. This averaging out is done such that discriminatory information can also not be inferred from the remaining non-discriminatory one, thus, neither allowing for direct nor for indirect discrimination.

Keywords: discrimination, differentiation, insurance pricing, individual policy char- acteristics, discriminatory covariates, direct discrimination, indirect discrimination, neural networks, complex algorithmic models, causal inference, confounding

JEL Classification: G22, G18, C13, C18, C45, C51, C54