Less-Discriminatory Alternative
A model, variable, or practice that meets the same business purpose with less adverse effect on a protected class. A required analysis in proxy testing.
A less-discriminatory alternative is a different model, variable, or business practice that achieves the same legitimate purpose while producing a smaller adverse effect on a protected class. The concept is central to the NYDFS proxy test and to fair-lending analysis in insurance.
The typical sequence is: first, identify whether a variable is correlated with a protected class; second, show that the variable is required by a legitimate business need; third, demonstrate that no less-discriminatory alternative exists. If a carrier cannot show the third step, the variable may be considered unfairly discriminatory.
This analysis must be documented and based on actual data, not assumptions. Regulators expect carriers to test alternatives, not just assert that none exist. See our guides to the proxy test and NYDFS Circular Letter No. 7.