The Discriminating (Pricing) Actuary

63 Pages Posted: 4 May 2020 Last revised: 16 Oct 2021

See all articles by Edward W. Frees

Edward W. Frees

University of Wisconsin - Madison; Australian National University (ANU)

Fei Huang

UNSW Australia Business School, School of Risk & Actuarial Studies

Date Written: March 16, 2021


The insurance industry is built on risk classification, grouping insureds into homogeneous classes. Through actions such as underwriting, pricing and so forth, it differentiates, or discriminates, among insureds. Actuaries have responsibility for pricing insurance risk transfers and are intimately involved in other aspects of company actions and so have a keen interest in whether or not discrimination is appropriate from both company and societal viewpoints. This paper reviews social and economic principles that can be used to assess the appropriateness of insurance discrimination. Discrimination issues vary by the line of insurance business and by the country and legal jurisdiction. This paper examines social and economic principles from the vantage of a specific line of business and jurisdiction; these vantage points provide insights into principles. To sharpen understanding of the social and economic principles, this paper also describes discrimination considerations for prohibitions based on diagnosis of COVID-19, the pandemic that swept the globe in 2020.

Insurance discrimination issues have been an important topic for the insurance industry for decades and is evolving in part due to insurers' extensive use of *Big Data*, that is, the increasing capacity and computational abilities of computers, availability of new and innovative sources of data, and advanced algorithms that can detect patterns in insurance activities that were previously unknown. On the one hand, the fundamental issues of insurance discrimination have not changed with Big Data; one can think of credit-based insurance scoring and price optimization as simply forerunners of this movement. On the other hand, issues regarding privacy and use of algorithmic proxies take on increased importance as insurers' extensive use of data and computational abilities evolve.

Keywords: Actuarial fairness, disparate impact, proxy discrimination, unisex classification, credit-based insurance scores, price optimization, genetic testing, big data, COVID-19

JEL Classification: K23

Suggested Citation

Frees, Edward (Jed) W. and Huang, Fei, The Discriminating (Pricing) Actuary (March 16, 2021). Available at SSRN: or

Edward (Jed) W. Frees (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Australian National University (ANU) ( email )


Fei Huang

UNSW Australia Business School, School of Risk & Actuarial Studies ( email )

Room 2058 South Wing 2nd Floor
Quadrangle building, Kensington Campus
Sydney, NSW 2052

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