A Discussion of Discrimination and Fairness in Insurance Pricing

14 Pages Posted: 18 Sep 2022

See all articles by Mathias Lindholm

Mathias Lindholm

Stockholm University

Ronald Richman

Old Mutual Insure; University of the Witwatersrand

Andreas Tsanakas

Bayes Business School (formerly Cass), City, University of London

Mario V. Wuthrich

RiskLab, ETH Zurich

Date Written: September 2, 2022


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.

Keywords: discrimination, indirect discrimination, proxy discrimination, fairness, protected information, discrimination-free, unawareness, group fairness, statistical parity, independence axiom, equalized odds, separation axiom, predictive parity, sufficiency axiom

JEL Classification: G22, G21

Suggested Citation

Lindholm, Mathias and Richman, Ronald and Tsanakas, Andreas and Wuthrich, Mario V., A Discussion of Discrimination and Fairness in Insurance Pricing (September 2, 2022). Available at SSRN: https://ssrn.com/abstract=4207310 or http://dx.doi.org/10.2139/ssrn.4207310

Mathias Lindholm

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91

Ronald Richman

Old Mutual Insure ( email )

Wanooka Place
St Andrews Road
Johannesburg, 2192
South Africa

University of the Witwatersrand ( email )

1 Jan Smuts Avenue
Johannesburg, GA Gauteng 2000
South Africa

Andreas Tsanakas

Bayes Business School (formerly Cass), City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Mario V. Wuthrich (Contact Author)

RiskLab, ETH Zurich ( email )

Department of Mathematics
Ramistrasse 101
Zurich, 8092

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