Actuarial Justification
The showing that an insurance rating or underwriting practice is supported by sound actuarial analysis and genuinely predictive of risk.
Actuarial justification is the defense that a rating or underwriting practice is supported by sound actuarial analysis and is genuinely predictive of risk. It is the standard response to an unfair-discrimination claim: the variable produces different outcomes not because of bias, but because it accurately reflects different risk levels.
The defense has limits. A variable can be predictive and still unfairly discriminatory if there is a less-discriminatory alternative that achieves the same business goal. The NYDFS proxy test and the Colorado quantitative testing rule both require carriers to test for those alternatives, not just to assert actuarial justification.
For AI models, actuarial justification must be documented with testing records, validation data, and a clear explanation of why the variable was selected. See our glossary entries on the proxy test and less-discriminatory alternative.