AI Approaches to Fraud Detection and Risk Management

researchers and practitioners doing work in these three related areas. Risk management, fraud detection, and intrusion detection all involve monitoring the behavior of populations of users (or their accounts) to estimate, plan for, avoid, or detect risk. In his paper, Til Schuermann (Oliver, Wyman, and Company) categorizes risk into market risk, credit risk, and operating risk (or fraud). Similarly, Barry Glasgow (Metropolitan Life Insurance Co.) discusses inherent risk versus fraud. This workshop focused primarily on what might loosely be termed “improper behavior,” which includes fraud, intrusion, delinquency, and account defaulting. However, Glasgow does discuss the estimation of “inherent risk,” which is the bread and butter of insurance firms. Problems of predicting, preventing, and detecting improper behavior share characteristics that complicate the application of existing AI and machine-learning technologies. In particular, these problems often have or require more than one of the following that complicate the technical problem of automatically learning predictive models: large volumes of (historical) data, highly skewed distributions (“improper behavior” occurs far less frequently than “proper behavior”), changing distributions (behaviors change over time), widely varying error costs (in certain contexts, false positive errors are far more costly than false negatives), costs that change over time, adaptation of undesirable behavior to detection techniques, changing patterns of legitimate behavior, the trad■ The 1997 AAAI Workshop on AI Approaches to Fraud Detection and Risk Management brought together over 50 researchers and practitioners to discuss problems of fraud detection, computer intrusion detection, and risk scoring. This article presents highlights, including discussions of problematic issues that are common to these application domains, and proposed solutions that apply a variety of AI techniques.