Insurance Fraud Detection for a US Insurance Provider

A US insurance provider watched claims volumes rise and suspected misuse in its Medicare and other health-related plans. We built and deployed a fraud detection system that screens claims automatically inside the existing claims management workflow, raising near-real-time alerts on suspicious activity — protecting the insurer's bottom line and its customers from inflated premiums.

The problem

Healthcare fraud rarely comes from a single bad actor. It frequently involves collusion among physicians, providers, and beneficiaries — patterns that conventional claim-by-claim screening misses. The insurer needed to spot these networks without burying its audit team in false positives, and it needed to understand exactly why any given claim was flagged.

What we built

Feature engineering for fraud rings

We aggregated numerical features — total claim amounts, frequency of visits — at the provider level, surfacing unusual billing patterns that slip through conventional screening. By examining how multiple actors interact (the same provider and group of beneficiaries recurring across suspicious claims), the model exposes potential fraud hotspots.

An interpretable classifier

We chose logistic regression for its balance of accuracy, computational efficiency, and explainability: the insurer can see exactly which features weighed most in labeling a claim suspicious. Adjustable thresholds let the business tune sensitivity (recall) against precision as its needs change.

Results

The deployed model reached ~0.90 accuracy, ~0.80 AUROC, and a ~0.55 Kappa score — strong discriminatory power against fraudulent claims. Fine-tuning the threshold reduces false positives, so honest providers aren't unfairly flagged, while detection rates stay rigorous.

Impact

• Real-time alerts. Integrated into the claims workflow, the model raises automated red flags on suspicious claims and significantly reduces the manual audit burden.
• Targeted investigations. High-risk providers are isolated quickly, so the client can investigate where it counts and curtail malicious activity faster.
• Regulatory value. Insights from the system help government authorities and policymakers tighten rules around health claims.
• Stable premiums. Rooting out fraud keeps premiums stable and prevents undue cost inflation across the healthcare sector — benefiting patients, businesses, and taxpayers.

Next steps

The system is built to keep improving. Feeding newly confirmed fraud cases back into training keeps the model current with evolving schemes. Ensemble techniques — combining logistic regression with random forests or gradient boosting — can harden results further as fraud tactics grow more sophisticated. And vectorizing ICD-9 medical codes (via Count Vectorizer, for example) would reveal deeper patterns in how procedures and diagnoses relate, boosting accuracy on niche fraud scenarios.