Starting Off on the Wrong Foot: Pitfalls in Data Preparation

TL;DR

This paper introduces a new data preparation framework for insurance data that improves model robustness and reliability by using advanced statistical methods for data splitting and feature screening, addressing issues of imbalance and instability.

Contribution

The study proposes a novel data preparation approach combining support points and Chatterjee correlation, integrated into an InsurAutoML pipeline, to enhance insurance modeling reliability.

Findings

Significantly improves model robustness and interpretability.

Reduces computational resource requirements.

Addresses challenges of imbalanced insurance data.

Abstract

When working with real-world insurance data, practitioners often encounter challenges during the data preparation stage that can undermine the statistical validity and reliability of downstream modeling. This study illustrates that conventional data preparation procedures such as random train-test partitioning, often yield unreliable and unstable results when confronted with highly imbalanced insurance loss data. To mitigate these limitations, we propose a novel data preparation framework leveraging two recent statistical advancements: support points for representative data splitting to ensure distributional consistency across partitions, and the Chatterjee correlation coefficient for initial, non-parametric feature screening to capture feature relevance and dependence structure. We further integrate these theoretical advances into a unified, efficient framework that also incorporates missing-data handling, and embed this framework within our custom InsurAutoML pipeline. The performance of the proposed approach is evaluated using both simulated datasets and datasets often cited in the academic literature. Our findings definitively demonstrate that incorporating statistically rigorous data preparation methods not only significantly enhances model robustness and interpretability but also substantially reduces computational resource requirements across diverse insurance loss modeling tasks. This work provides a crucial methodological upgrade for achieving reliable results in high stakes insurance applications.