Enhancement of Backward Feature Elimination as a Pre-Processing Method for K Nearest Neighbor Algorithm Applied to Insurance Fraud Detection

Abstract

This study presents novel enhancements to the Backward Feature Elimination (BFE) method for improved insurance fraud detection using the K-Nearest Neighbor (KNN) algorithm. The research addresses issues inherent in the baseline BFE process, such as the over-reliance on p-values, the potential for misleading results, and suboptimal feature selection leading to overfitting. To address these, the study integrates confidence intervals and feature importance into the BFE process, establishing a more robust and reliable criterion for feature selection. Moreover, feature engineering techniques are introduced during preprocessing to enhance model performance. The modified BFE method demonstrates superior performance over the baseline model regarding the recall, precision, and F1 score. Stratified K-Fold Cross-Validation, ROC-AUC Score, and Coefficient of Variation (CV) confirm the consistency and robustness of the enhanced model across varying data subsets. These innovations offer a comprehensive and reliable solution to feature selection in the BFE method, applied to the KNN model for effective insurance fraud detection. The study mitigates the issues related to p-value dependence and boosts model performance, paving the way for more accurate and robust fraud detection systems.