Chapter 10 - Ethical and Societal Considerations of Data Analytics

Which one of the following is the advantage of credit score modeling? Select one: A. Improve rating methodologies and develop premiums that are commensurate with expected loss levels B. High complexity C. Easy to explain to customers D. Consumers and regulators can understand the result of credit score modeling.

A

Which one of the following is typically reflected on a modelling ethics checklist? Select one: A. User consent. B. Software type. C. Solvency. D. Accuracy.

A

California Consumer Privacy Act (CCPA)

A regulation creating a set of standards for how organizations doing business in California must handle personal information about consumers.

General Data Protection Regulation (GDPR)

A regulation creating an EU-wide set of standards that applies to personal data relating to online or real-world behavior for EU internet users.

Which one of the following practices by a company demonstrates compliance with the General Data Protection Regulation? Select one: A. Once the company obtains consent to use the customer's personal data, it will freely share that information with any of its subsidiaries. B. The company performs research using the personal data of 17-year-old customers without obtaining parental consent. C. When customers request to see their personal data that is being used, the company will provide screenshots of the records from its systems. D. After the customer has consented to using their personal data for 7 years, the company may continue to use that information without continued consent.

B

Why would a variable be considered unethical when used in an insurance pricing model? Select one: A. The variable is related to the customer's past insurance history. B. The variable is unfairly discriminatory. C. The variable is discriminatory. D. It is expensive to collect data on the variable.

B

right View Insurer has adapted its insurance scoring model. What should the updated model allow Right View to do?

By improving its model, Right View will be better equipped to select insureds and price personal insurance policies based on this correlation

Which one of the following is an advantage of applying an ethics checklist to a data project? Select one: A. It makes regulatory approval more likely. B. It speeds up the project. C. It allows for ethical checks while maintaining an efficient process. D. It ensures the project results will not be used unethically.

C

Which one of the following is an appropriate way for a modeler to balance the priorities of accuracy and explainability? Select one: A. Based on how a previous iteration of the model performed B. Based on the ease of interpreting the model results C. Based on how the model and its results will be used D. Based on the abilities of the modeling technique

C

Which one of the following reasons best explains why subjects may be misclassified by a model? Select one: A. The model is overfit to the training data and does not validate well on new data. B. The model uses variables that do not accurately divide the population. C. The classification threshold is just an approximation of the diving line between two groups. D. The classification threshold is improperly selected.

C

Which one of the following sentences is correct? Select one: A. Insurance scores are intended to measure credit worthiness. B. Insurance scores are used to determine rating classifications and its loss. C. Insurance scores have no direct relationship to the financial credit scores that are used in lending decisions. D. An insurance score is a qualitative point system based on select credit report characteristics, such as age of oldest account, number of inquiries in twenty-four months, and ratio of total balance to total limits.

C

what would you tell Sara are some drawbacks to using a checklist?

Checklists can encourage oversimplified or binary (that is, "yes" or "no") thinking when answers should be more nuanced. Following a checklist can also give someone a false sense of security that their work is ethical.

Which one of the following is a requirement of the Fair Credit Reporting Act? Select one: A. Organizations must send breach notifications to affect persons in the case of a data breach of consumer report information. B. Organizations must destroy a customer's consumer report information at the customer's request. C. Organizations must provide consumers with notices detailing what consumer report information they are using and how that information is safeguarded. D. Organizations must notify consumers when an adverse insurance action is taken because of a consumer report.

D

what are some steps an organization can take to ensure compliance with data-related regulations?

Train employees on requirements. Determine all the personal information the organization is currently collecting. Understand how that information is used, shared, and sold. Update privacy policies and procedures. Ensure the organization has a system in place to promptly respond to consumer requests. Work with only compliant vendors and third parties

ASOP 41

actuarial communications

advantage of credit based insurance score

allows insurers to improve rating methods and develop premiums that are commensurate with expected loss levels

bridget, a new underwriter, wants to ensure that a predictive model she's using is fair and transparent. How can she gauge whether this is the case?

confirm that the models uses data that's both accurate and truly predictive of the expected future cost of coverage. She will also want to verify that the model allows the insurer to demonstrate the rationale for risk-related decisions and illustrates how consumer data is collected and used.

peril of scalability for credit scores

danger associated with a model's potential to influence widespread decision making

what can encourage oversimplified thinking when answers are more nuanced, and can give someone false sense of security that work is ethical?

data project checklist

ASOP 23

data quality

2 main tent poles of ethical models

fairness transparency

what enable insurers to establish a correlation between credit or insurance scores and claim potential?

insurance scoring models

what are the two main categories of laws with which actuarial work must comply?

insurer and data-protection regulations

relationship between credit score and frequency/severity of a loss?

inverse as credit score increases, frequency/severity of a loss decreases

ASOP 56

modeling

3 insurance regulation duties

protect customers maintain solvency prevent destructive competition

bridget's colleague, Matteo, has warned her of forms of data that consumers often deem unfair for use in risk selection and pricing. What forms of data might these be?

sex, marital status, race, religion, national origin, and credit reports other controversial forms: zip code; biometric and genetic information; purchase histories; telematics; online activities; social media posts; activities tracked by wearables; and information on injuries, disabilities, and medical conditions.

sara is an actuary who is looking to create a checklist. What's the key to creating a checklist that someone will actually use repeatedly?

simple to use and not overly time consuming. They're often more willing to complete a short list of questions that require only a "yes" or "no" answer regarding whether individual tasks have been completed.

what are the five main actuarial organizations based in the United States?

the American Academy of Actuaries (the Academy) The American Society of Enrolled Actuaries (ASEA) The Casualty Actuarial Society (CAS) The Conference of Consulting Actuaries (CCA) The Society of Actuaries (SOA)

data dredging

the inappropriate (sometimes deliberately so) use of data mining to uncover relationships in data that may be misleading.

data mining

the process of analyzing data to extract information not offered by the raw data alone

what are some reasons credit score models might be perceived as unfair?

they don't account for the circumstances that may have caused someone's score to decline