A Fair price to pay: exploiting causal graphs for fairness in insurance

35 Pages Posted: 12 Feb 2024

See all articles by Olivier Côté

Olivier Côté

Université Laval - Ecole d’Actuariat

Marie-Pier Côté

Université Laval - Ecole d’Actuariat

Arthur Charpentier

Université du Québec à Montréal; Université du Québec à Montréal

Date Written: July 08, 2024

Abstract

In many jurisdictions, insurance companies are prohibited from discriminating based on certain policyholder characteristics. Exclusion of prohibited variables from models prevents direct discrimination, but fails to address proxy discrimination, a phenomenon especially prevalent when powerful predictive algorithms are fed with an abundance of acceptable covariates. The lack of formal definition for key fairness concepts, in particular indirect discrimination, hinders effective fairness assessment. We review causal inference notions and introduce a causal graph tailored for fairness in insurance. Exploiting these, we discuss potential sources of bias, formally define direct and indirect discrimination, and study the theoretical properties of fairness methodologies. A novel categorization of fair methodologies into five families (best-estimate, unaware, aware, hyperaware, and corrective) is constructed based on their expected fairness properties. A comprehensive pedagogical example illustrates the implications of our findings: the interplay between our fair score families, group fairness criteria, and discrimination.

Keywords: Bias, Causal inference, Disparate impact, Score, Directed acyclic graph, Discrimination, Fairness criteria

JEL Classification: G22

Suggested Citation

Côté, Olivier and Côté, Marie-Pier and Charpentier, Arthur, A Fair price to pay: exploiting causal graphs for fairness in insurance (July 08, 2024). Available at SSRN: https://ssrn.com/abstract=4709243 or http://dx.doi.org/10.2139/ssrn.4709243

Olivier Côté (Contact Author)

Université Laval - Ecole d’Actuariat ( email )

Canada
5813056367 (Phone)

HOME PAGE: http://https://www.linkedin.com/in/olivier-cote-act/

Marie-Pier Côté

Université Laval - Ecole d’Actuariat ( email )

Canada

Arthur Charpentier

Université du Québec à Montréal ( email )

PB 8888 Station DownTown
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada

Université du Québec à Montréal ( email )

Canada

HOME PAGE: http://https://freakonometrics.github.io/

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