Insurance Fraud Detection using Unsupervised Sequential Anomaly Detection

Abstract: Fraud is a common crime within the insurance industry, and insurance companies want to quickly identify fraudulent claimants as they often result in higher premiums for honest customers. Due to the digital transformation where the sheer volume and complexity of available data has grown, manual fraud detection is no longer suitable. This work aims to automate the detection of fraudulent claimants and gain practical insights into fraudulent behavior using unsupervised anomaly detection, which, compared to supervised methods, allows for a more cost-efficient and practical application in the insurance industry. To obtain interpretable results and benefit from the temporal dependencies in human behavior, we propose two variations of LSTM based autoencoders to classify sequences of insurance claims. Autoencoders can provide feature importances that give insight into the models' predictions, which is essential when models are put to practice. This approach relies on the assumption that outliers in the data are fraudulent. The models were trained and evaluated on a dataset we engineered using data from a Swedish insurance company, where the few labeled frauds that existed were solely used for validation and testing. Experimental results show state-of-the-art performance, and further evaluation shows that the combination of autoencoders and LSTMs are efficient but have similar performance to the employed baselines. This thesis provides an entry point for interested practitioners to learn key aspects of anomaly detection within fraud detection by thoroughly discussing the subject at hand and the details of our work.