ASRM Seminar -- Daniel Bauer -- A Novel Perspective of Procedural Fairness of Insurance Rating Algorithms: A Tweedie Surrogate Approach
- Sponsor
- Actuarial Science and Risk Management
Title: A Novel Perspective of Procedural Fairness of Insurance Rating Algorithms: A Tweedie Surrogate Approach
Abstract:
Fairness and transparency of predictive algorithms are becoming an increasingly important topic, particularly in the insurance industry where predictive modeling is ubiquitous. This paper provides a new angle on procedural fairness by providing a novel model diagnostic tool for frequency-severity models. Our approach can distinguish for which subgroups a model provides adequate estimates for expected loss, which is a regulatory requirement for using a predictive model in US insurance regulation. Furthermore, it allows us to draw insights on potential mechanisms in case of poor goodness-of-fit for a subgroup. We showcase the approach in the context of an auto insurance dataset, where we document the poor performance of a pooled model for blue-collar workers in urban environments. We demonstrate how the approach can remedy misestimation of expected loss and we identify salient missing information on alcohol use as one potential driver.Speaker's Bio:
Dani Bauer is the Senior Associate Dean for Programs at the Wisconsin School of Business and the Hickman-Larson Chair in Actuarial Science in the Department of Risk and Insurance. Dani’s research publishes in leading journals in actuarial science, economics, finance, management, and statistics, and he has served on the editorial boards of leading journals in actuarial science and risk management. He has taught classes in actuarial science, quantitative finance, risk management, data analytics, and machine learning. He has served as an expert on insurance and insurance-linked investments for the Securities Exchange Commission (SEC), the Internal Revenue Service (IRS), and several large insurance companies. Dani earned his MS in Statistics from San Diego State University and his PhD in Mathematics from Ulm University. Prior to joining the faculty at UW-Madison, Dani was the Dai-ichi Life Insurance Company Endowed Chair in Actuarial Science and Risk Management at Culverhouse College of Commerce at the University of Alabama and Robert W. Batten Chair in Actuarial Science at the J. Mack Robinson College of Business at Georgia State University.