Actuaries Address Racial Pricing Issues



The Casualty Actuarial Society (CAS) has written a number of papers that examine the subject of race and insurance pricing while attempting to make a useful contribution to the related policy debate.


According to CAS, insurance pricing is a high-wire act.

Actuaries must measure and make distinctions among a vast array of risk factors while avoiding unfair bias.

But as laws and society’s concept of prejudice evolve, it is crucial for us to stay current with changes in how it is defined and judged.

Four papers—two published this week and two more to be out on March 31—that describe, measure, and provide solutions for dealing with unfair prejudice when it is discovered—are the result of the CAS study.



Given the numerous prediction models utilized today, which might result in inappropriate comparisons and incorrect conclusions, confusion surrounding insurance rating is reasonable.

Machine learning and algorithms have significant potential to contribute to fair pricing.

But studies have shown that these technologies can also reinforce prejudices that manage to find their way into their programming.


Recent Colorado law, along with other state and federal initiatives to address alleged bias in pricing, compels insurers to demonstrate that their use of external data and sophisticated algorithms does not discriminate against protected classes.

The insurance sector and the actuarial discipline are in a good position to keep assisting corporate and policy decision-makers in comprehending and addressing these disparities.


This week’s CAS papers include the following:


Methods for Measuring the Effects of Discrimination on Protected Classes in Insurance

Various Strategies to Address Racial Bias in Financial Services: Insurance Industry Lessons