Unbiased and Fair:

exam6addoilexam6addoil
in CIA.Bias
  • A model appropriately differentiates based on risk
  • No systematic disadvantage to any protected group
  • The ideal state for insurance pricing
  • Off the top of my head I would think something where the insured is rated purely by telematics (i.e. only based on their driving habits) would be something that is 100% unbiased and fair

why it is unbiased here? it doesn't treat all customers identically, should it be biased??

Comments

  • exam6addoilexam6addoil

    A model appropriately differentiates based on risk =>biased?

  • Staff-T1Staff-T1
    "Bias in P&C pricing is any situation in which the outcomes of ratemaking models are
    systematically less favourable to individuals within a particular group and where there
    is no relevant difference between groups that justifies the difference in premiums or
    rates"
    This is from the paper. If a model appropriately differentiates between groups and the differentiation is justified then it is not biased
  • exam6addoilexam6addoil

    If a model appropriately differentiates between groups and the differentiation is justified， would it be both unbiased and fair?

  • exam6addoilexam6addoil

    okk, i am more confused now

    “Biased but Fair:

    A model charges different rates to groups defined by age
    This is "biased" as it systematically differentiates
    But if age correlates with accident risk, it may be actuarially justified
    Society generally accepts age-based pricing as fair (where legal)”

    so if it is systematically differentiates=>biased
    if it is appropriately differentiates=>unbiased?

  • Staff-T1Staff-T1
    Yes to both questions. I think the key point is that if you don't target any particular group systematically (ex young drivers, certain genders or skin colours) then you are not being biased, which is why if you price purely based on driving behavior you're not systematically targetting any particular group
Sign In or Register to comment.