Measuring and Mitigating Biases in Motor Insurance Pricing
Mulah Moriah Franck Vermet Arthur Charpentier
The non-life insurance sector operates within a highly competitive and
tightly regulated framework, confronting a pivotal juncture in the formulation
of pricing strategies. Insurers are compelled to harness a range of statistical
methodologies and available data to construct optimal pricing structures that
align with the overarching corporate strategy while accommodating the dynamics
of market competition. Given the fundamental societal role played by insurance,
premium rates are subject to rigorous scrutiny by regulatory authorities. These
rates must conform to principles of transparency, explainability, and ethical
considerations. Consequently, the act of pricing transcends mere statistical
calculations and carries the weight of strategic and societal factors. These
multifaceted concerns may drive insurers to establish equitable premiums,
taking into account various variables. For instance, regulations mandate the
provision of equitable premiums, considering factors such as policyholder
gender or mutualist group dynamics in accordance with respective corporate
strategies. Age-based premium fairness is also mandated. In certain insurance
domains, variables such as the presence of serious illnesses or disabilities
are emerging as new dimensions for evaluating fairness. Regardless of the
motivating factor prompting an insurer to adopt fairer pricing strategies for a
specific variable, the insurer must possess the capability to define, measure,
and ultimately mitigate any ethical biases inherent in its pricing practices
while upholding standards of consistency and performance. This study seeks to
provide a comprehensive set of tools for these endeavors and assess their
effectiveness through practical application in the context of automobile
insurance.