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 have a less-discriminatory alternative that would reasonably meet the same business need. New York’s Circular Letter No. 7 expects carriers to search for those alternatives and document the search, not just to assert actuarial justification, and Colorado’s regulation points to quantitative testing the Division has yet to set.
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.