A post by Doug Corbin, PhD student on the Compass programme.

# Introduction

In a recent bout of friendly competition, students from the Compass and Interactive AI CDT’s were divided into eight teams to take part in a two week Datathon, hosted by insurance provider LV. A Datathon is a short, intensive competition, posing a data-driven challenge to the teams. The challenge was to construct the *best *predictive model for (the size of) insurance claims, using an anonymised, artificial data set generously provided by LV. Each team’s solution was given three important criteria, on which their solutions would be judged:

**Accuracy**– How well the solution performs at predicting insurance claims.**Explainability**– The ability to understand and explain how the solution calculates its predictions; It is important to be able to explain to a customers how their quote has been calculated.**Creativity**– The solution’s incorporation of new and unique ideas.

Students were given the opportunity to put their experience in Data Science and Artificial Intelligence to the test on something resembling real life data, forming cross-CDT relationships in the process.

# Data and Modelling

Before training a machine learning model, the data must first be processed into a numerical format. To achieve this, most teams transformed categorical features into a series of 0’s and 1’s (representing the value of the category), using a well known process called *one-hot encoding*. Others recognised that certain features had a natural order to them, and opted to map them to integers corresponding to their ordered position.

A common consideration amongst all the teams’ analysis was *feature importance*. Out of the many methods/algorithms which were used to evaluate the relative importance of the features, notable mentions are Decision Trees, LASSO optimisation, Permutation Importance and SHAP Values. The specific details of these methods are beyond the scope of this blog post, but they all share a common goal, to rank features according to how important they are in predicting claim amounts. In many of the solutions, *feature importance* was used to simplify the models by excluding features with little to no predictive power. For others, it was used as a post analysis step to increase explainability i.e. to show which features where most important for a particular claim prediction. As a part of the feature selection process, all teams considered the ethical implications of the data, with many choosing to exclude certain features to mitigate social bias.

Interestingly, almost all teams incorporated some form of **Gradient Boosted Decision Trees (GBDT)** into their solution, either for feature selection or regression. This involves constructing multiple decision trees, which are aggregated to give the final prediction. A decision tree can be thought of as a sequence of binary questions about the features (e.g. Is the insured vehicle a sports car? Is the car a write off?), which lead to a (constant) prediction depending on the the answers. In the case of GBDT, decision trees are constructed sequentially, each new tree attempting to capture structure in the data which has been overlooked by its predecessors. The final estimate is a weighted sum of the trees, where the weights are optimised using (the gradient of) a specified *loss function* e.g. **Mean-Squared Error (MSE)**,

Many of the teams trialled multiple regression models, before ultimately settling on a tree-based model. However, it is well-known that tree-based models are prone to *overfitting* the training data. Indeed, many of the teams were surprised to see such significant difference between the training/testing **Mean Absolute** **Error (MAE)**,

# Results

After two weeks of hard-work, the students came forward to present their solutions to a judging panel formed of LV representatives and CDT directors. The success of each solution was measured via the MAE of their predictions on the testing data set. Anxious to find out the results, the following winners were announced.

### Accuracy Winners

Pre-processing: Categorical features one-hot encoded or mapped to integers where appropriate.

Regression Model: Gradient Boosted Decision Trees.

Testing MAE: 69.77

The winning team (in accuracy) was able to dramatically reduce their testing MAE through their choice of loss function. Loss functions quantify how good/bad a regression model is performing during the training process, and it is used to optimise the linear combination of decision trees. While most teams used the popular loss function, **Mean-Squared Error***, *the winning team instead used **Least Absolute Deviations***, *which is equivalent to optimising for the MAE while training the model.

### Explainability (Joint) Winners

After much deliberation amongst the judging panel, two teams were awarded joint first place in the explainability category!

**Team 1: **

Pre-processing: Categorical features one-hot encoded or mapped to integers where appropriate. Features centred and scaled to have mean 0 and standard deviation 1, then selected using Gradient Boosted Decision Trees.

Regression Model: K-Nearest-Neighbours Regression

Testing MAE: 75.25

This team used Gradient Boosted Decision Trees for feature selection, combined with K-Nearest-Neighbours (KNN) Regression to model the claim amounts. KNN regression is simple in nature; given a new claim to be predicted, the K “most similar” claims in the training set are averaged (weighted according to similarity) to produce the final prediction. It is thus *explainable *in the sense that for every prediction you can see exactly which neighbours contributed, and what similarities they shared. The judging panel noted that, from a consumer’s perspective, they may not be satisfied with their insurance quote being based on just K neighbours.

**Team 2:**

Pre-processing: All categorical features one-hot encoded.

Regression Model: Gradient Boosted Decision Trees. SHAP values used for post-analysis explainability.

Testing MAE: 80.3.

The judging panel was impressed by this team’s decision to impose **monotonicity** in the claim predictions with respect to the numerical features. This asserts that, for monotonic features, the claim prediction must move in a constant direction (increasing or decreasing) if the numerical feature is moving in a constant direction. For example, a customer’s *policy excess* is the amount they will have to pay towards a claim made on their insurance. It stands to reason that increasing the policy excess (while other features remain constant) should not increase their insurance quote. If this constraint is satisfied, we say that the insurance quote is **monotonic decreasing **with respect to the policy excess. Further, SHAP values were used to explain the importance/effect of each feature on the model.

### Creativity Winners

Pre-processing: Categorical features one-hot encoded or mapped to integers where appropriate. New feature engineered from *Vehicle Size *and *Vehicle Class. *Features selected using Permutation Importance.

Regression Model: Gradient Boosted Decision Trees. Presented post-analysis mediation/moderation study of the features.

Testing MAE: 76.313.

The winning team for creativity presented unique and intriguing methods for understanding and manipulating the data. This team noticed that the features, *Vehicle Size *and *Vehicle Class*, are intrinsically related e.g. They investigated whether a *large* vehicle would likely yield a higher claim if it is also of *luxury *vehicle class. To represent this relationship, they engineered a new feature by taking a multiplicative combination of the two initial features.

As an extension of their solution, they presented an investigation of the causal relationship between the different features. Several hypothesis tests were performed, testing whether the relationship between certain features and claim amounts is **moderated **or **mediated** by an alternative feature in the data set.

**Mediating relationships:**If a feature is mediated by an alternative feature in the data set, its relationship with the claim amounts can be well explained by the alternative (potentially indicating it can be removed from the model).**Moderating relationships:**If a feature is moderated by an alternative feature in the data set, the strength and/or direction of the relationship with the claim amounts is impacted by the alternative.

# Final Thoughts

All the teams showed a great understanding of the problem and identified promising solutions. The competitive atmosphere of the LV Datathon created a notable buzz amongst the students, who were eager to present and compare their findings. As evidenced by every team’s solution, the methodological conclusion is clear: When it comes to insurance claim prediction, tree-based models are unbeaten!