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Fraud Detection Project Report

The document discusses detecting fraudulent vehicle insurance claims using machine learning. It first provides background on the problem of insurance fraud and focuses on vehicle insurance fraud. The authors then describe analyzing insurance claim data to understand characteristics of fraudulent claims and training machine learning models like random forests and decision trees to detect fraud. Key results included models achieving over XX% accuracy in detecting fraudulent claims. The document concludes future work could involve more advanced techniques and expanding the models to other insurance fraud types.

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Roshan Velpula
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193 views

Fraud Detection Project Report

The document discusses detecting fraudulent vehicle insurance claims using machine learning. It first provides background on the problem of insurance fraud and focuses on vehicle insurance fraud. The authors then describe analyzing insurance claim data to understand characteristics of fraudulent claims and training machine learning models like random forests and decision trees to detect fraud. Key results included models achieving over XX% accuracy in detecting fraudulent claims. The document concludes future work could involve more advanced techniques and expanding the models to other insurance fraud types.

Uploaded by

Roshan Velpula
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Detection of Fraud Insurance Claims in Vehicles

FRANCESCO BUZZI, POONGKUNDRAN THAMARAISELVAN, and ROSHAN VELPULA


Insurance fraud has been a problem since the inception of insurance. However, the methods used for committing fraud and the
frequency of these incidents have increased in recent years. Vehicle insurance fraud often involves making false or exaggerated
claims for damages or injuries resulting from an accident. Examples of this type of fraud include staged accidents, the use of phantom
passengers, and false personal injury claims. In this paper, we analyze data to understand the characteristics of fraudulent claims and
use machine learning algorithms to detect this type of fraud.

Additional Key Words and Phrases: Random Forest, Decision Trees, Exploratory data analysis, Fraud detection

1 INTRODUCTION
Insurance fraud is a pervasive problem that has been affecting the insurance industry for many years. One of the most
common types of insurance fraud is vehicle insurance fraud, which involves making false or exaggerated claims for
damages or injuries resulting from a car accident. In recent years, the volume and frequency of vehicle insurance fraud
incidents have increased significantly, leading to significant losses for insurance companies.
The purpose of this project is to create a model using machine learning algorithms to detect vehicle insurance fraud. One
challenge in using machine learning for fraud detection is that fraud is much less common than legitimate insurance
claims, which can make it difficult for the model to accurately identify fraudulent activity. In order to develop a successful
model, it is important to balance the cost of false alerts with the potential savings from avoiding losses due to fraud.
Insurance fraud can take many forms, including arranging accidents, misrepresenting the circumstances of an accident,
and exaggerating the extent of damages or injuries. Machine learning can help improve the accuracy of fraud detection
and allow insurance companies to more effectively identify and prevent fraudulent activity.

2 METHODOLOGY
The first step in our project was to collect a large dataset of past insurance claims, both fraudulent and legitimate. We
obtained this dataset from Kaggle , which provided us with anonymized data on a variety of claims made over a period
of several years. The dataset included information on the type of claim, the amount of the claim, the date of the claim,
and other relevant details.
Once we had collected the dataset, we performed basic data analysis to understand the characteristics of fraudulent
claims. This analysis allowed us to identify key features that are often associated with fraudulent claims, such as the
amount of the claim, the type of claim, and the date of the claim. We also looked at other factors, such as the location of
the accident and the number of people involved, to see if they had any impact on the likelihood of fraud.
With this information in hand, we proceeded to train a machine learning model to detect fraudulent claims. We used a
variety of algorithms, including logistic regression, decision trees, and random forests, to develop the model. We trained
the model on the dataset of past claims, using the identified features as inputs and the known fraudulent and legitimate
labels as outputs.
Once the model was trained, we tested it on a separate dataset of claims to see how well it performed. We found that
the model was able to accurately detect fraudulent claims with a high degree of accuracy, achieving an overall accuracy
rate of over 𝑋𝑋 𝑝𝑒𝑟𝑐𝑒𝑛𝑡.

Authors’ address: Francesco Buzzi; Poongkundran Thamaraiselvan; Roshan Velpula.


1
Our work can be divided into four main components:

• Exploratory Data Analysis: This involves examining the data to understand its characteristics and identify any
patterns or trends.
• Data Preprocessing: This involves cleaning and preparing the data for modeling, such as by handling missing
values, transforming variables, and scaling the data.
• Data Modeling: This involves building and fitting statistical or machine learning models to the data to make
predictions or classify data points.
• Model Evaluation: This involves assessing the performance of the model using metrics such as accuracy,
precision, and recall, and making adjustments to improve the model as needed

2.1 Exploratory Data Analysis


Exploratory Data Analysis (EDA) is a crucial step in any data science project, including the project on detecting vehicle
fraud insurance claims. EDA involves analyzing and summarizing the characteristics of the data, identifying any trends
or patterns, and checking for inconsistencies or anomalies.
The goal of EDA is to gain a better understanding of the data and to identify any potential problems or opportunities
that could affect the success of the project. This involves examining the distribution of the data, looking for correlations
between variables, and visualizing the data using charts and plots.
Our first goal was to get familiar with the dataset, We found that the data has 33 columns including our dependant
column ’FraudFound’. Our data consists of a total of 9 numerical and 24 categorical columns with no missing values.

Some important plots and pairwise comparisons between our dependent and independent variables.

Fig. 1. Distribution of Variables


Fig. 2. FraudFound vs Make

Analysis: Mercedes and Accura have a higher probability of fraudulent transactions, most likely due to a higher
return in these costlier cars

Fig. 3. FraudFound vs DayOfWeek

Analysis: Fraudulent claims are higher nearer to the Weekends!


Fig. 4. FraudFound vs AgeOfPolicyHolder

Analysis: Fraudulent claims are generally made from persons ranging from the age group 30-40

Fig. 5. FraudFound vs AgeOfVehicle

Analysis: Newer Vehicles and Ages of vehicles between 2-4 years have encountered many Fraudulent claims
Fig. 6. FraudFound vs AccidentArea Fig. 7. FraudFound vs PastClaims

Fig. 8. FraudFound vs WitnessPresent Fig. 9. FraudFound vs TypeOfPolicy

These are the other interesting analysis we found from EDA

3 DATA PREPROCESSING AND MODELING


<Data Preprocessing and Data Modeling>

4 MODEL EVALUATION
<Model Evaluation and Results>

5 CONCLUSION AND FUTURE SCOPE


While our model performed well in this study, there is still room for improvement. In the future, we plan to explore more
advanced machine learning techniques, such as deep learning, to see if we can achieve even better performance. We also
plan to expand the scope of the model to include other types of insurance fraud, such as health and life insurance fraud.
In conclusion, our project shows that machine learning algorithms have the potential to play a significant role in the
fight against insurance fraud. By providing insurance companies with a powerful tool for detecting fraudulent claims,
we can help them reduce their losses and improve the overall efficiency of the insurance industry
REFERENCES
[1] Andrea Dal Pozzolo. 2015. Adaptive machine learning for credit card fraud detection. (2015).
[2] Najmeddine Dhieb, Hakim Ghazzai, Hichem Besbes, and Yehia Massoud. 2019. Extreme gradient boosting machine learning algorithm for safe auto
insurance operations. In 2019 IEEE international conference on vehicular electronics and safety (ICVES). IEEE, 1–5.
[3] MOHAMED Hanafy and Ruixing Ming. 2021. Using Machine Learning Models to Compare Various Resampling Methods in Predicting Insurance
Fraud. Journal of Theoretical and Applied Information Technology 99, 12 (2021).
[4] Jesús M Pérez, Javier Muguerza, Olatz Arbelaitz, Ibai Gurrutxaga, and José I Martín. 2005. Consolidated tree classifier learning in a car insurance
fraud detection domain with class imbalance. In International Conference on Pattern Recognition and Image Analysis. Springer, 381–389.
[5] Yibo Wang and Wei Xu. 2018. Leveraging deep learning with LDA-based text analytics to detect automobile insurance fraud. Decision Support
Systems 105 (2018), 87–95.
[6] Meryem Yankol-Schalck. 2022. The value of cross-data set analysis for automobile insurance fraud detection. Research in International Business and
Finance 63 (2022), 101769.

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