Underwriting, claims and pricing.
WHERE IT IS USED
Risk assessment and pricing Claims triage Fraud detection Document processing Customer service
WHERE REGULATION BITES
Pricing and underwriting decisions affecting individuals.
Many jurisdictions restrict what factors may be used and require justification.
THE FAIRNESS QUESTION
A model finding that a factor predicts risk does not make using it lawful or acceptable.
Predictive power and permissibility are separate questions.
THE PROXY PROBLEM AGAIN
Factors correlating with protected characteristics produce discriminatory pricing even where those characteristics are excluded.
Test outcomes by group.
FOR CLAIMS
Triage and document processing are good applications.
Claims decisions affecting a policyholder require human determination and an explanation.
FOR CLAIMS FRAUD
Flagging for investigation is appropriate. Declining a claim on a model score is not.
WHAT TO ALWAYS PROVIDE
A route to a human, and a clear appeals process.
WHAT TO DOCUMENT
The factors used, why, and the testing performed.
