The Role of Actuarial Discretion in Discrimination in Auto Insurance

Authors: Bubba Abrams, William Lofquist

SUNY Campus: SUNY Geneseo

Presentation Type: Oral

Location: UUW 325

Presentation #: 10

Timeslot: Session A 9:00-10:00 AM

Abstract: In today's auto insurance industry, rate discrimination against people of color and lower-class individuals is rampant, but unseen by those outside of the industry. This is due to the proliferation of individualist perceptions of the operations of the auto insurance industry among social scientists and legal scholars in calculating insurance rates. It operates on the basis of risk calculation, backed up by actuarial measures that serve to single out minorities living in low-income areas. Driving history, insurance history, zip code, homeownership, and credit are among the most common measures used by insurance companies to calculate insurance rate, are shaped by a history of racial discrimination in the financial and housing sectors, but are treated as unbiased by the Supreme Court, thus insulating the insurance company from legal challenge of discrimination. This has resulted in people of color in low-income areas paying disproportionate levels of their household income on auto insurance, which has the effect of reducing the social and spatial mobility of these groups. There has in recent years, however, been a legal struggle in states like California to decrease levels of discrimination in auto insurance by reducing the power of discretion allowed to insurance companies in choosing measures to determine rates. This project attempts to strengthen the position of these challenges by providing a concise description of how certain measures may unintentionally introduce bias into auto insurance rating.