Fairness in Risk Classification

Earlier chapters have discussed the economic rationale for risk classification, focusing on how this process contributes to the solvency of the insurance company and preserves the availability of insurance by reducing anti-selection. This chapter considers the charge that some aspects of the risk classification process are unfair. Since fairness is often in the eye of the beholder, it is necessary to begin by considering some of the different ways that fairness has been defined. These definitions then are analyzed from the point of view of meaningfulness, desirability, and attainability within the present organization of the insurance industry.