Insurance pricing discrimination and Aristotelian equality: an application to annuity pricing

Abstract

International courts often apply the social justice standard of Aristotelian equality—treating like people alike and unlike people differently—to cases involving insurance pricing discrimination. This article examines whether the use of insurance pricing variables like gender and race results in discriminatory pricing categories consisting of heterogeneous policyowners, in violation of Aristotelian equality. This article applies this discrimination standard to the pricing of annuities, drawing from studies investigating the racial mortality crossover, findings that show that the mortality rate of Black Americans falls below the rate of White Americans at advanced ages. Based on the crossover literature, this study demonstrates how race-based annuity pricing would be discriminatory because it results in heterogeneous pricing within racial pricing categories, but that insurers can control for this heterogeneity by using the wider variety of annuity pricing data (e.g., medical history, diseases, and smoking) developed in the enhanced annuity submarket. The article demonstrates how the increased use of data analytics in insurance pricing to control for heterogeneity is consistent with Aristotelian equality.