About This Event
This presentation will investigate the balance between maintaining accurate risk differentiation and ensuring equitable treatment among various classes of interest when certain rating variables are restricted or banned through regulation. Using a collection of foundational synthetic examples we have investigated a spectrum of scenarios with imposed regulatory actions.
Within these simulated scenarios we review models reflecting traditional regulatory constraints such as:
- Limiting the range a rating variable is allowed to differentiate (capping), reflecting policies such as limiting territorial differentiation in pricing
- Prohibiting the use of a certain rating variable, reflecting policies such as prohibiting use of credit-based insurance scores
We also review other modeling approaches intended to improve parity within a particular class of interest, such as;
- Utilizing the class of interest as a control variable in a rating model
- Utilizing the class of interest to create residualized rating variables to be used in a rating model
