Since the CAS Board of Directors approved the CAS Approach to Race and Insurance Pricing in December 2020, CAS volunteers and staff have been hard at work on activities to position CAS and our members as leaders in the industry dialogue on potential racial bias in insurance practices. As part of that approach, the CAS has produced four Research Papers that provide a foundation for actuaries and industry professionals as they develop solutions to identify and address potential systemic bias in insurance pricing and advance actuarial practice overall.

Approaches to Address Racial Bias in Financial Services: Lessons for the Insurance Industry — In reviewing issues of racial bias in mortgage-, personal- and commercial-lending institutions and credit-scoring industries, this paper highlights the solutions that these sectors have implemented to address this bias. These include government intervention, internal bias testing and monitoring measures, and new product development to mitigate bias. While none of these solutions has proven to be a silver bullet, there are still opportunities for the insurance industry to learn from these approaches and potentially apply them in our sector.

Methods for Quantifying Discriminatory Effects on Protected Classes in Insurance — Actuaries are perfectly poised to bring their skills to the table when it comes to identifying, measuring and addressing potential bias in their models. This paper examines mathematical approaches to defining and measuring fairness in predictive models. It also provides a high-level overview of bias mitigation techniques that can be performed during the input, modeling or output phase of a model, once a set of fairness criteria has been adopted.

Defining Discrimination in Insurance — Several terms are commonly used in recent discussions around discrimination in insurance: protected class, unfair discrimination, proxy discrimination, disparate impact, disparate treatment and disproportionate impact. This paper explores these terms, providing historical and practical context for them and illustrating the inconsistencies in how different insurance industry stakeholders define them.

Understanding Potential Influences of Racial Bias on P&C Insurance: Four Rating Factors Explored — Consumer advocates and regulators often cite examples of insurance rating factors that may unintentionally introduce racial bias in the pricing process. This paper examines four commonly used rating factors in personal lines insurance — credit-based insurance score, geographic location, home ownership and motor vehicle records — to understand how racially biased policies and practices outside of the system of insurance contribute to concerns about bias in insurance rating. The paper explores sources of concern like redlining in the mortgage lending industry, information used or ignored in traditional credit reporting and bias in traffic policing, while keeping in mind that the potential translation of these issues into insurance rates is not easily measured, at least for now.

These four papers will be published on the CAS website in mid- to late March. Keep an eye on the CAS weekly e-bulletin for further announcements.

If you have questions about the CAS Approach to Race and Insurance Pricing, email diversity@casact.org.

Editor’s note: The first two papers are now available on the CAS website.