Edition

Research Studies: Request for Proposals Fairness Metrics for Life Insurance

Background

The Society of Actuaries Research Institute (“SOA Research”) is the research arm of the Society of Actuaries (SOA), providing objective, data-driven research that brings together tried and true practices and future-focused approaches to address societal challenges and business needs. SOA Research provides trusted knowledge, extensive experience, and new technologies to help effectively identify, predict, and manage risks. Part of SOA Research’s efforts are dedicated to objectively exploring issues within the insurance, retirement, and financial industries that affect people of color or other dimensions of diversity in the United States.

Precept 1 of the actuarial Code of Professional Conduct calls upon actuaries to act “honestly, with integrity and competence, and in a manner to fulfill the profession’s responsibility to the public….” Precept 7 of the same Code expects actuaries to act “fairly.” However, the actuarial Code of Professional Conduct Code defines neither of these concepts.

In recent years, there has been much discussion and effort aimed toward evaluating whether life and other insurance products and processes are fair. Regulators, consumers, actuaries, other insurance industry professionals, advocates, and others have varying perspectives on concepts of fairness in this context. The SOA Research Institute’s Diversity Equity and Inclusion (DEI) Strategic Research Program is interested in contributing to this discourse by identifying and explaining a variety of quantitative metrics that could be used to evaluate the fairness of underwriting, rating and other operational processes involved in life insurance while recognizing that perspectives on and definitions of “fairness” vary, sometimes significantly.

Purpose and Research Objective

The SOA Research Institute’s DEI Strategic Research Program seeks researchers to identify, summarize, and explain a broad array of quantitative metrics that could be used to evaluate the fairness of a wide range of life insurance products and processes, depending on the definition of fairness and the product or process. The researcher’s report should recognize a variety of definitions of “fairness” as they apply to the full range of the business cycle, including but not limited to marketing, rating or pricing, claims management, fraud detection, etc.

For each definition of fairness addressed, the report should discuss:

  1. Relevant fairness definition(s)
  2. Potential metrics that align with the definition
  3. An example for applying each metric
  4. General strengths and weaknesses of the metric
  5. Strengths and weaknesses of the metric when applied in different situations or for different products
  6. Applicability in practice now and potential other uses
  7. Considerations for determining thresholds of acceptability for a metric’s results
  8. Potential unintended consequences of using a metric

Discussion of each metric should include examples that illustrate its use and highlight its strengths, weaknesses, and real-world impact. The report should also address the concepts, tensions, or questions listed below and discuss relevant metrics, including their strengths, weaknesses, and real-world impact:

  • Equity and equality
  • Group and individual fairness
  • Fairness and anti-selection
  • Application of fairness with respect to protected classes as well as to other groups or individuals
  • Fairness in the context of:
  • Characteristics of people that are outside of their control,
  • Behaviors or choices that people can control, and
  • Characteristics, behaviors, or choices that are not fully within people’s control
  • Fairness and acceptability of outcomes
  • Actuarial adequacy and sustainability in pricing
    • Actuarial adequacy in this context refers to accurate estimation of expected claims.
      • Determining fairness if a given group represents the entirety of an insurance carrier’s book of business, should the group be priced to cover its expected claims.
      • For multiple groups within an insurance carrier’s book of business, determining whether it is fair for each group being priced to cover its expected claims.
    • Sustainability in this context refers to the ability to maintain a product at a given price.
      • The impact of low-frequency, high-severity events, including on a carrier’s ability to offer coverage.
      • Fairness of price versus fairness of availability of coverage.
  • In a group capital context with risk diversification, what are fair ways to share the benefit of risk diversification?
  • When evaluating fairness using parity metrics:
  • Which factors are important to consider when selecting the reference group?
  • How does the choice of the reference group influence results?
  • Fairness of processes and their results.
  • Shifting definitions of fairness and/or thresholds of acceptability.

The report should also discuss how to mitigate unfairly biased results, including how to handle fact-based risk patterns that may be present in the data. This discussion may depend on the specific metric or specific context in which it is applied.

Proposal Requirements

Please submit the following information:

  1. Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, please designate a single individual as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
  2. Outline of the research approach to be used (e.g., literature search, model, etc.), emphasizing issues that require special consideration. Please provide details regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
  3. A description of the expected deliverables and any supporting data, tools or other resources.
  4. Cost estimates for the research, including computer time, salaries, report preparation, material costs, etc. Such estimates can be in the form of hourly rates, but in such cases, please include time estimates and indicate any guarantees or limits as to total cost. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
  5. As a guide for developing the project budget, please review the Historical Project Cost Guide in the Appendix below.
  6. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. SOA Research is interested in completing this project in a timely manner and encourages suggestions in the proposal for ensuring timely delivery, such as fee adjustments.
  7. Please detail any other related factors that give evidence of a proposer's capabilities to perform in a superior fashion.

Selection Process

SOA Research will appoint a Project Oversight Group (POG) to oversee the project. The POG will review proposals and make recommendations toward funding them. SOA Research may also seek input from other knowledgeable individuals a before making the final decision on funding proposals. An SOA staff actuary will provide staff actuarial support.

Questions

Please direct any questions regarding this RFP to Lisa Schilling, Senior Research Actuary, at lschilling@soa.org or +1 (847) 273-8837.

Notification of Intent to Submit Proposal

If you intend to submit a proposal, please email written notification by June 2, 2023, to Lisa Schilling at lschilling@soa.org.

Submission of Proposal

Please email your proposal to Lisa Schilling at lschilling@soa.org; proposals must be received no later than June 16, 2023. SOA Research staff anticipate that all proposers will be informed of the status of their proposal by the end of July or August 2023.

Conditions

The selection of a proposal is conditioned upon and not considered final until a Letter of Agreement is executed by both SOA Research and the researcher.

SOA Research reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. SOA Research also reserves the right to redirect the project as is deemed advisable.

SOA Research plans to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

SOA Research may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the [Society of Actuaries/sponsoring entity] in publicizing or promoting the research and responding to media requests.

The SOA may also choose to market and promote the research to members, candidates and other interested parties. You agree to perform promotional communication requested by SOA Research, which may include, but is not limited to, leading a webcast on the research, presenting the research at an SOA meeting, and/or authoring an article on the research for an SOA newsletter.

Conflict of Interest

You agree to disclose any of your material business, financial and organizational interests and affiliations which are or may be construed to be reasonably related to the interest, activities and programs of the SOA Research Institute.

Appendix

The cost ranges below are intended as a guide for budgeting project costs for proposals in response to SOA Research Requests for Proposals (RFPs). Please note these figures span the 33rd to 66th percentiles for all projects as well as projects that involve a specific approach (lit review, survey, etc.). They are based on historical costs over several recent years. Expected costs for some RFPs may fall outside these ranges depending on the nature of the work and resources required for completion.

All Contracted Projects

This category includes all contracted projects that SOA Research has undertaken within the last several years.

The 33rd–66th percentile project costs range is $25,000–$50,000.

Literature Reviews

This category includes projects that involved only a literature review or the cost for the portion of a larger project that included a literature review.

The 33rd–66th percentile project costs range is $15,000–$20,000.

Surveys

This category includes all projects that had a survey as their primary component.

The 33rd–66th percentile project costs range is $28,000–$55,000.