Actuarial equity is defined as the calculation of an insurance premium based on critical factors like an applicant’s age group, sex, health, family history and the kind of insurance coverage useful for. This helps the insurers to treat applicants practically as per their predictable risk levels.
The application of Actuarial equity is wider in an automobile insurance, in which the insurers use “age” as a ranking factor in shaping individual premiums. Thus, because young crowd tends to have lesser preferable driving records as a group, these individuals are required to pay out more in premiums, normally including the expected value of losses.
Ethical explanation for Actuarial Equity
It is often said that insurance is essentially a redistribution of goods. If it is true, possibly the strongest ethical argument that goes in favor of actuarial equity will leads towards the redistribution of costs throughout the society with the purpose of achieving the right distribution of goods .