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Fundamentals of Actuarial Pricing

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Insurance, Biases, Discrimination and Fairness

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Abstract

“Insurance is the contribution of the few to the misfortune of the many” is a simple way to describe what insurance is. But it doesn’t say what the “contribution” should be, to be fair. In this chapter, we return to the fundamentals of pricing and risk sharing, and at the end we mention other models used in insurance (to predict future payments to be provisioned, to create a fraud score, etc.).

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Notes

  1. 1.

    Lecturer in private law, UFR of Law, Le Mans University, member of Thémis-UM and Ceprisca.

  2. 2.
    The Greek word genos translates to race, kind, or type.

    is the etymological source of “gender,” and not “gene,” based on

    The Greek word reads gamma, epsilon, nu, epsilon, alpha.

    from the aorist infinitive of

    The Greek letter reads gamma, iota, gamma, nu, omicron, mu, alpha, iota.

    —I come into being.

  3. 3.

    Denuit and Charpentier (2004) discuss the mathematical formalism that allows such a writing. In particular, the expectation is calculated according to a probability \(\mathbb {P}\) corresponding to the “historical” probability (there is no law of one price in insurance, contrary to the typical approach in market finance, in the sense of Froot et al. (1995). This will be discussed further in Sect. 3.1.1.). Insurance, like econometrics, is formalized in a probabilistic world, perhaps unlike many machine learning algorithms which are derived without a probabilistic model, as discussed in Charpentier et al. (2018).

  4. 4.

    Without discounting, as death is (at an infinite time horizon) certain, the pure premium would be exactly the amount of the capital paid to the beneficiaries.

  5. 5.

    \(\Phi \) is here the distribution function of the centered and reduced normal distribution, \(\mathcal {N}(0,1)\).

  6. 6.

    Formally, property covers a home (physical building) and the belongings in it from all losses such as fire, theft, etc., or covers damage to a car when involved in an accident, including protection from damage/loss caused by other factors such as fire, vandalism, etc. Causality involves coverage if one is being held responsible for someone injuring themselves on his or her property, or if one were to cause any damage to someone else’s property, and coverage if one gets into an accident and causes injuries to someone else or damage to their car.

  7. 7.

    See https://www.soa.org/about/governance/about-code-of-professional-conduct/.

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    Arthur Charpentier

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Charpentier, A. (2024). Fundamentals of Actuarial Pricing. In: Insurance, Biases, Discrimination and Fairness. Springer Actuarial. Springer, Cham. https://doi.org/10.1007/978-3-031-49783-4_2

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