Tomorrow I'll be discussing the borders of solidarity as a panel member at an actuarial congress (VSAE) for econometricians in The Hague (The Netherlands).
In a Dutch interview preceding the congress, two students asked me:
"The Court of Justice of the European Union (CJEU) has decided that the use of gender as a risk factor by insurers should not lead to individual differences in premiums and benefits.
What is your opinion?"
What is your opinion?"
My short answer was :
NOT Discriminating is
NOT Possible
Examples
Let me illustrate this 'quantum quote' with two examples.
Example I: Gender Neutral Car Insurance
- It's scientifically proven that women are better drivers, have just as much car accidents as men, but cause less damage. That's a fact and that's why car insurance for women is cheaper than for men.
- As from December 21, 2012, European insurers are not allowed to 'discriminate' anymore by gender, implying equal car insurance premiums for men and women.
- If insurers calculate this premium as the weighted average of their portfolio, women are obliged to pay (much) more premium than before and also more than actually and actuarially necessary regarding their gender group.
- Therefore women are de facto discriminated, although the genuine intention was NOT to discriminate!
- Not only women, but also insurers are discriminated as they now will be faced with anti-selection: Relatively more men will choose an insurance cover, as car insurance premiums for men have become less than the premium corresponding with the expected damage for their gender group. Insurers will therefore face a loss on car insurance.
- Based on solvency legislation, the insurer will (next) be 'forced' to increase the average weighted premium. This - in turn - is at odds with the measures envisaged by the European Court.
- A similar kind of reasoning applies also for unisex rates for pension and life insurance.
- The upcoming (2014) US health care law will also prohibit “gender rating”. However, gaps persist in most states. There seem to be no signs of insurers that have taken steps to reduce them.
'Over-Solidarity' as in this case has nothing to do with real solidarity and is in nobody's interest; it has become 'Anti-solidarity'.
The proposed measures - no matter how well intended - have a opposite effect and should be reconsidered on basis of the question: are the discriminating effects before the new legislation more or less than after?
We've got to stop discrimination due to over-discrimination and anti-discrimination!
Insurance Rating Fallacy: Gender anti-discrimination laws are superseded
Prohibiting "gender", "marital status" and "age" as rating elements doesn't solve anything.
Modern rating systems based on data mining (Google history), social media (premium quoting on basis of: your smart-phone that captures and shares your drivingstyle with the insurer) and neural networks are "black boxes" that quote insurance premiums in such a way that every client can get individually quoted on bases of his 'profile'.
That 'profile' doesn't have to contain any of the forbidden discriminating elements (nor direct related) to get satisfactory results for clients as well as insurers. Although there are also simple (e.g. Bayesian-Classification) techniques to derive a clients gender from other non-discriminant related variables (e.g. height, weight and foot-size determine gender quite accurately) in an insurers direct or indirect related data base, insurers and their actuaries would end up in an unwanted ethical dilemma by using these direct-related techniques.
Another illustrative and strong example of determining your gender on bases of - at first sight - non-gender-related information is Hacker Factor's "Gender Guesser" that attempts to determine an author's gender based on the words used. Try "Gender Guesser" for yourself HERE. Take a part of an email you've written (more than 300 words), copy-paste it to Gender Guesser and notice how gender Guesser will probably determine your gender without any problem in a split of a second!
These simple techniques show that the developed anti discrimination legislation is superseded and has become irrelevant for insurers and their clients to come anyhow to an adequate and ethical responsible rating policy on basis of neural networks or social media related information, such as information from smartphones that transmit your driving style information to the insurer (why not, if you have nothing to hide?).
Example 2:.Women on Boards: Commission proposes 40% objective
The European Commission has proposed legislation with the aim of attaining a 40% women presence objective in non-executive board-member positions of publicly listed large companies.
Currently, large boards are dominated by men (85% non-executive, 91% executive).
From experience I can tell that women who really qualify for board level positions, are very unhappy if they are appointed under the vigor of gender legislation and not on basis of their acknowledged competences.
This is perhaps a sign that women who really qualify feel discriminated by this new proposal. Proposals should better emphasize on stimulating women presence on board level and take away old boys network principles.
Conclusion
Anti discriminating legislation often results in the exact opposite of what is intended. Legislation is often superseded, should be carefully evaluated on its effects and certainly reconsidered if the discriminating effects after applying the new legislation increase.
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LinkedIn Actuary-Info Group
I totally agree. Solidarity does not mean "equality". Statistics speak and prove that there are differences between men and women, diferences that mean "money".
ReplyDeleteI totally agree. Solidarity doesn´t mean "equality". Statistics speak and prove that there are differences between men and women, diferences that mean "money"
ReplyDelete