© 2023 JETIR July 2023, Volume 10, Issue 7 www.jetir.

org (ISSN-2349-5162)

“Vehicle insurance fraud Detection using Machine

Learning”
MD Irshad Hussain B, Pramod Kumar K N, Rakesh U B, Sachinraj M R, Tejas S Patil
Letcher, MCA
UBDT College Of Engineering

1 Abstract:
Vehicle insurance fraud poses a significant challenge for insurance companies, resulting in substantial financial losses. To address this
issue, this study proposes a machine learning-based approach for the detection of vehicle insurance fraud. By leveraging historical
insurance claims data and employing various ML algorithms, this research aims to develop an effective fraud detection system. The
study encompasses data preprocessing, feature selection, model training, and evaluation, with the ultimate goal of improving the
accuracy and efficiency of fraud detection in the vehicle insurance domain.
There are thousands of firms in the insurance industry globally. and collect premiums totaling more than $1 trillion each year. Insurance
fraud occurs when a person or organisation submits a fake insurance claim in an effort to collect money or benefits to which they are
not legally entitled. An insurance scam is thought to have a total financial impact of over $40 billion. Deterring insurance fraud is thus
a difficult issue for the insurance sector. The established method for detecting fraud is focused on creating heuristics around fraud
indicators. The most prevalent kind of insurance fraud is auto fraud, which is accomplished by filing false accident claims.

2 Keywords:
Vehicle insurance fraud, machine learning, fraud detection, data preprocessing, feature selection, model training, evaluation.

3 Introduction:
Vehicle insurance fraud has become a prevalent problem in the insurance industry, leading to substantial financial losses. Fraudulent
claims can range from staged accidents to inflated damage assessments and falsified policyholder information. Detecting and preventing
such fraudulent activities is crucial for insurance companies to maintain profitability and ensure fair premiums for genuine policyholders.
Traditional methods of fraud detection often fall short in identifying complex fraudulent patterns and adapting to evolving fraud
techniques.

In recent years, machine learning (ML) techniques have gained prominence in fraud detection due to their ability to analyze large
volumes of data, uncover hidden patterns, and make accurate predictions. ML models have the potential to identify suspicious behaviors,
anomalous claims, and fraud indicators that might be difficult to detect manually. This research focuses on leveraging ML algorithms to
develop a robust vehicle insurance fraud detection system, which can significantly enhance fraud detection capabilities.

Vehicle fraud is a significant concern in the automotive industry, costing billions of dollars each year. The advent of advanced machine
learning techniques has provided new opportunities to detect and prevent fraudulent activities related to vehicles. By leveraging the
power of machine learning, it is possible to develop robust fraud detection systems that can identify suspicious patterns, behaviors, and
anomalies in vehicle-related transactions.
Machine learning algorithms can be trained to analyze large volumes of data, including vehicle registration records, insurance claims,
financial transactions, and historical patterns of fraudulent activities. By extracting meaningful features from this data, machine learning
models can learn to recognize patterns that are indicative of fraudulent behavior. These models can then be used to automatically flag
suspicious activities for further investigation, enabling early detection and prevention of vehicle fraud.
The benefits of using machine learning for vehicle fraud detection are manifold. Firstly, it allows for the analysis of vast amounts of
data in real-time, enabling quick identification of potential fraud cases. Secondly, machine learning models can adapt and improve over
time as they are exposed to new data and evolving fraud techniques. This adaptability ensures that the detection system remains effective
even as fraudsters develop new strategies.

Moreover, machine learning-based fraud detection systems can reduce false positives, minimizing the impact on legitimate customers.
By continuously learning from historical data, these models can improve their accuracy in distinguishing between genuine and fraudulent
transactions. This helps streamline the investigation process and ensures that resources are allocated more efficiently to investigate
genuine cases of fraud.

JETIR2307882 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org i577
 © 2023 JETIR July 2023, Volume 10, Issue 7 www.jetir.org (ISSN-2349-5162)
In this paper, we will explore various machine learning techniques and algorithms that can be applied to detect vehicle fraud. We will
discuss the data preprocessing steps, feature engineering techniques, and the selection of appropriate algorithms for training the fraud
detection models. Additionally, we will delve into the challenges associated with vehicle fraud detection and how machine learning can
help overcome these challenges.

By harnessing the power of machine learning, we have the opportunity to significantly enhance the effectiveness and efficiency of
vehicle fraud detection systems. This research aims to contribute to the development of robust and reliable solutions that can protect
individuals, organizations, and the automotive industry as a whole from the detrimental effects of vehicle fraud.

4 Literature Survey:
Prior research in the field of vehicle insurance fraud detection has explored various approaches to address this problem. Some studies
have utilized rule-based systems, while others have applied statistical methods and neural networks. However, ML-based techniques
have shown promising results due to their adaptability and ability to learn from historical data.

Several studies have employed supervised ML algorithms such as logistic regression, decision trees, random forests, and gradient
boosting to detect fraudulent claims. Feature engineering has been crucial in extracting relevant information, including policyholder
demographics, vehicle details, accident reports, and claim amounts. By analyzing these features, ML models can identify patterns
indicative of fraudulent behavior.

However, there is still a need for further research in enhancing the accuracy and efficiency of fraud detection systems in the vehicle
insurance domain. This study aims to contribute to the existing body of knowledge by exploring novel techniques and leveraging
advancements in ML algorithms to improve fraud detection capabilities.

4.1 Existing System:

Insurance fraud against insurance companies is a frequent occurrence. 10% of the 800 million compensation claims submitted each year,
according to Terry Allen, a statistician with the Medicaid Fraud Office in Utah [1] (Allen, 2000) [2]. On the other hand, they estimate
that between 21% and 36% of claims are questionable, whereas the percentage of claims that are subject to legal action only accounts
for 3% of fraud suspicions [3,4]. According to the Association of British Insurers (ABI), claims grew by 18% in 2014 compared to the
prior year (Cutting corners, 2015).

Advantages Disadvantages

It is relatively the simple, well-understood, standard

technology. Hard to Predict the fraud claims and Manual Analysis

It’s is real time application and very useful to

Insurance Industries.
Less accuracy and time consuming

It is much significant and prevents huge loss by

detecting the fraud claims. This methodology is expensive

4.2 Proposed methodology:

 Proposed system is a real time application.
 This system is meant for insurance industry.
 Predicts the insurance fraud claims.
 Also predicts fraud claims using machine learning techniques.
 Uses classification rules such as naive Bayes or KNN or ID3 algorithms for fraud prediction.

4.3 Dataset Collection:

To conduct this research, a comprehensive dataset comprising historical insurance claims, policyholder information, vehicle details,
accident reports, and other relevant data was collected. The dataset includes both fraudulent and nonfraudulent claims to ensure a
representative sample for model training and evaluation. Care was taken to ensure data privacy and compliance with regulations
throughout the collection process.

JETIR2307882 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org i578
© 2023 JETIR July 2023, Volume 10, Issue 7 www.jetir.org (ISSN-2349-5162)
3.Methodology:
Data Collection and Preprocessing : Collecting relevant data such as historical insurance claims, policyholder information, vehicle
details, accident reports, etc. Preprocessing the collected data by cleaning, transforming, and normalizing it to ensure its quality and
consistency.

Feature Extraction and Selection : Extracting meaningful features from the preprocessed data that can contribute to identifying
fraudulent patterns. Applying feature selection techniques to choose the most relevant features for the fraud detection model.

Model Training : Training machine learning algorithms using the labeled training data. Utilizing various algorithms such as logistic
regression, decision trees, random forests, gradient boosting, or neural networks to build the fraud detection model. Tuning
hyperparameters and optimizing the model to improve its performance.

Model Evaluation : Evaluating the trained model using appropriate metrics like accuracy, precision, recall, F1 score, or area under the
receiver operating characteristic curve (AUC-ROC). Assessing the model's performance using a separate testing dataset to gauge its
effectiveness in detecting fraudulent claims. Deployment and Prediction Deploying the trained model into a production environment or
integrating it into an existing system. Accepting new insurance claims as input and predicting the likelihood of fraud for each claim.
Providing a risk score or fraud probability for each claim, enabling further investigation or decision-making.

Monitoring and Maintenance : Continuously monitoring the performance of the deployed model.
Collecting feedback on the accuracy of predictions and incorporating new data to retrain and update the model periodically. Adapting
the system to emerging fraud patterns and improving its effectiveness over time.

Integration and Reporting : Integrating the fraud detection system with other insurance processes or systems to automate fraud
detection and prevention. Generating reports and alerts for suspicious claims, enabling investigators to take appropriate actions.

System Architecture:

This is basically to provide a real time application for detecting the Fraud claims and helping the insurance companies from identifying
such fraud claims and prevent themselves from loss.

Fig-1: Flow Diagram of the Proposed Model.

JETIR2307882 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org i579
 © 2023 JETIR July 2023, Volume 10, Issue 7 www.jetir.org (ISSN-2349-5162)
Fig.1 shows the flow of the model where dataset is in form of csv (comma separated values) format. Classification is performed using
the XGBoost (eXtreme Gradient Boosting) algorithm. K-NN, decision tree have also been employed for the recognition task and as a
result the recognition accuracy has improved significantly.
The project is implemented using python which is an object oriented programming language and procedure oriented programming
language. Object oriented programming is an approach that provides a way of modularizing program by creating partitioned memory
area of both data and function that can be used as a template for creating copies of such module on demand.
5 Result and Discussion:
The collected dataset was preprocessed to remove noise, handle missing values, and normalize numerical features. Feature selection
techniques were applied to identify the most relevant features for fraud detection. Various ML models, including logistic regression,
decision trees, random forests, and gradient boosting, were trained using the labeled training data.
The trained models were evaluated using appropriate metrics such as accuracy, precision, recall, and F1 score. The model with the
highest performance was selected as the best-performing fraud detection system.

analyzing key features such as policyholder demographics, vehicle details, and claim amounts, the model successfully identified patterns
indicative of fraud. Ongoing monitoring and periodic retraining of the model will be essential to adapt to emerging fraud patterns and
improve the system's effectiveness.

These findings highlight the potential of ML-based approaches in mitigating vehicle insurance fraud. By accurately identifying
fraudulent claims, insurance companies can reduce financial losses, enhance operational efficiency, and provide fair premiums to
genuine policyholders. Future research can explore additional techniques, such as anomaly detection and natural language processing,
to further improve fraud detection capabilities in the vehicle insurance domain.

6 Conclusion:
In conclusion, this study has demonstrated the potential of machine learning techniques in detecting vehicle insurance fraud. By
leveraging historical insurance claims data and employing various ML algorithms, the developed fraud detection system shows
promising results in identifying fraudulent patterns. The study highlights the importance of data preprocessing, feature selection, model
training, and evaluation in building an effective fraud detection system.

Through the analysis of policyholder demographics, vehicle details, and claim amounts, the deployed model successfully identifies
patterns indicative of fraud, enabling insurance companies to mitigate financial losses and improve operational efficiency. Ongoing
monitoring and periodic retraining of the model will be crucial in adapting to evolving fraud techniques and maintaining the system's
accuracy.

The research presented in this study contributes to the existing literature on vehicle insurance fraud detection by exploring ML-based
approaches and showcasing their potential in improving fraud detection capabilities. However, further research is warranted to
investigate additional techniques and advancements in ML algorithms to enhance fraud detection systems in the vehicle insurance
domain.

Insurance claim fraud has been a problem for this business from the start, making it a difficult process to discover. The proposed approach
attempts to provide a system that can identify potential frauds with the highest degree of accuracy. Whether an insurance claim is
"FRAUD" or "GENUINE" is predicted by the proposed approach. Consequently, assisting insurance firms to identify frauds more
quickly and accurately.

In conclusion, the Decision tree algorithm has shown promise in detecting vehicle fraud in this project. The model achieved a high level
of accuracy, precision, recall, and F1 score in identifying fraudulent vehicle transactions. The feature importance analysis revealed the
key factors contributing to fraud detection, aiding in understanding the underlying patterns and indicators of fraudulent activity.

The Random Forest approach demonstrated robustness and generalization capabilities, successfully detecting both known and previously
unseen fraudulent patterns. While the interpretability of the Random Forest model is limited due to its ensemble nature, its predictive
performance outweighs this drawback.

References:
● Bhasin, H., & Srivastava, S. (2018). Fraud Detection in Automobile Insurance using Machine Learning Techniques. International Journal
of Computer Applications, 181(5), 8-11.
● Jin, Y., & Wang, H. (2017). An Investigation of Insurance Fraud Detection Based on Machine Learning Techniques. Journal of Physics:
Conference Series, 859(1), 012003.
● Karkal, D., Srinivas, S. V., & Kulkarni, M. (2020). Vehicle Insurance Fraud Detection Using Machine Learning. 2020 4th International
Conference on Intelligent Computing and Control Systems (ICICCS), 228232.
● Pham, L. D., & Phung, N. M. (2019). Detecting Fraud in Auto Insurance Claims Using Machine Learning Techniques. 2019 RIVF
International Conference on Computing and Communication Technologies (RIVF), 7-12.
● Rahamathunnisa, S., & Vadivel, S. (2021). Predicting Fraudulent Claims in Vehicle Insurance Using Machine Learning Techniques.
Proceedings of the 2nd International Conference on Innovative Computing and Communication (ICICC), 193-197.

JETIR2307882 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org i580