A three-pillar governance framework for fair insurance pricing

As pricing models based on big data and predictive algorithms redefine the insurance industry, the question of Fairness has become central. How can pricing be guaranteed that is accurate, transparent and socially fair?

In their Working Paper no. 37, entitled A three-pillar governance framework for fair insurance pricing, Arthur Charpentier, Olivier Côté and Marie-Pier Côté propose an innovative conceptual framework based on three fundamental principles: actuarial equity, the solidarity And the causation. In their opinion, these three complementary pillars constitute the bases of ethical and responsible governance of insurance pricing.

📄 Read the post: Download Working Paper No. 37

Three pillars for rethinking equity

The authors point out that insurance is based on a fragile balance between individual risk and collective protection. However, contemporary models based on artificial intelligence and big data raise new questions of equity, especially in the face of protected or sensitive characteristics.

Their three-pillar framework highlights the ethical trade-offs that actuaries and insurers face:

• Actuarial equity aims for risk-based precision, but may reinforce socioeconomic disparities.
• Solidarity ensures mutualization and collective protection, while being able to reduce market efficiency.
• Causality, in seeking to isolate the true effects of risk, is based on complex and sometimes unverifiable hypotheses.

None of these principles can dominate without compromising the others: it is their balanced articulation that allows fair and sustainable pricing.

A framework for responsible governance

This three-dimensional model goes beyond the technical approach to pricing alone to offer a genuine governance framework.
Building on the work of Rawls and Sen in distributive justice, of Floridi and Nissenbaum in information ethics, and on the risk sharing theory OfArrow, the authors place insurance pricing in a larger debate on corporate social responsibility And the Algorithmic governance.

They thus invite us to consider equity no longer as an implicit assumption, but as a explicit objective to be integrated into regulatory and decision-making practices in the sector.

About the PARI Chair

La PARI Chair (Prediction, Insurance, Risk and Intelligence), hosted at the Risk Foundation and supported by theLouis Bachelier Institute, explores the interactions between data science, Actuarial services and risk ethics.
It aims to support the evolution of the insurance sector in the face of technological transformations, by developing governance and regulatory tools adapted to the new uses of artificial intelligence.

The work of the Chair contributes to enlightening public decision-makers, regulators and professionals in the sector on the issues of transparency, of Algorithmic justice And of economic solidarity within predictive models in insurance and finance.

Expanded thinking

Beyond the insurance field, this three-pillar framework provides an analysis framework applicable to other areas of risk-based algorithmic decision-making — such as credit, the health, or the social protection.
By making explicit the ethical trade-offs between precision, solidarity and causality, it offers a way to rethinking the governance of algorithms in the service of fairness and trust.

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