5 | Case Studies: Challenges for insurers – Customers with protected attributes are disadvantaged by pricing based on that rating factor, particularly where customers are unable to make choices around their risk exposure described by that rating factor. However, in other situations, such as if CIPL were to extend their pricing analysis to include a model of claim frequency, best practice would be to carefully include Group A/B status within the construction of this model, in order that the derived parameters from that model only reflected the effect of car type on claim frequency and not the effect of the protected attribute as well. Is there direct discrimination? (b) Part B Upon acquiring additional statistical data, CIPL discovers that people in Group A (that is, people with a certain protected attribute) are, on average, inherently less likely to have a car accident than people in Group B (people without that attribute), regardless of the car they drive. Based on this information, the expected cost of claims will be greater for policyholders in Group B, compared to policyholders in Group A who drive equivalent cars. CIPL considers whether it should retain the same pricing (as above) or change its prices for customers based on their group membership. CIPL retains the same pricing CIPL’s pricing in Part A only uses a model of repair cost (i.e. drivers of expensive cars are charged higher premiums in accordance with the difference in the expected cost of claims), which would be unaffected by the effect of the protected attribute on claim frequency. If CIPL retains the previous pricing outlined in Part A, there is no direct discrimination as Group A are not being treated differently from Group B because of, or by reason of, a protected attribute. The premium charged is still due to the expected cost of claims for each car. Is there indirect discrimination? What is the requirement? For a claim of indirect discrimination, the relevant requirement might be described as: a customer who purchases insurance from CIPL must drive a cheaper car to be provided with the lower premium for their insurance policy, without reference to the riskiness of the driver arising from their membership of Group A or Group B. Similar questions would arise as discussed in Part A regarding whether customers with protected attributes did or could comply to establish a claim of indirect discrimination under the RDA and DDA. Does the requirement disadvantage people with a protected attribute? Group A might argue in this situation that they are disadvantaged by the requirement that premiums are charged only in accordance with the cost of the car because, as they are inherently less risky, they are paying more than their ‘fair’ price. 30