Fairness and discrimination in insurance pricing

Mario Wüthrich is a professor at ETH Zürich in Switzerland. Thanks to a grant from Knut and Alice Wallenberg Foundation, he will be a visiting professor at the Department of Mathematics, Stockholm University.

The project is about using mathematical methods to address issues surrounding fairness and discrimination in the insurance industry. How should these issues be handled when it comes to pricing of insurance?

There are already laws that prohibit companies from using protected attributes, such as gender, when pricing insurance. However, simply ignoring the protected attributes is not enough, as they can still be inferred through a variety of non-protected variables that are now collected in large quantities, so called big data. This inference is called indirect discrimination. Issues of discrimination, both direct and indirect, are already regulated by law, but definitions in the legal texts are not mathematically rigorous and leave room for interpretation.

In practice, insurance prices will rarely be completely discriminatory or completely avoid discrimination, and an important part of this research project is the development of methods to reliably measure the degree of fairness and discrimination in insurance pricing. This is of particular interest when it comes to e.g. identifying disadvantaged groups of individuals.

Another part of the project deals with the fact that the insurance business is conducted in a competitive market, which means that mathematical risk-based insurance premiums are adjusted for business considerations. This type of adjustment opens up new mathematical questions about fairness and avoiding discrimination. 

Photo: Bastian Bergmann