A Comparative Analysis of Decision Trees Vis-`a-vis Other Computational Data Mining Techniques in Automotive Insurance Fraud Detection

Abstract

The development and application of computational data mining techniques in financial fraud detection and business failure prediction has become a popular cross-disciplinary research area in recent times involv-ing financial economists, forensic accountants and computational modellers. Some of the computational techniques popularly used in the context of fi-nancial fraud detection and business failure prediction can also be effectively applied in the detection of fraudulent insurance claims and therefore, can be of immense practical value to the insurance industry. We provide a compara-tive analysis of prediction performance of a battery of data mining techniques using real-life automotive insurance fraud data. While the data we have used in our paper is US-based, the computational techniques we have tested can be adapted and generally applied to detect similar insurance frauds in other countries as well where an organized automotive insurance industry exists.