🏥💰 Insurance Cost Analysis & Prediction - Complete Data Science Project

A comprehensive exploratory data analysis (EDA) and machine learning project for predicting insurance costs using demographic and health factors.

🎯 Project Overview

This project demonstrates a complete data science workflow for analyzing and predicting insurance costs. Using a dataset of 1,338 insurance records, we explore relationships between demographic factors, health indicators, and insurance charges through advanced statistical analysis and machine learning.

🔍 Key Features

• Complete EDA Pipeline: From data exploration to feature engineering
• Statistical Analysis: Correlation analysis, Chi-square testing, and hypothesis testing
• Machine Learning Model: Linear regression with 80.4% R-squared accuracy
• Feature Engineering: BMI categorization and advanced feature selection
• Data Visualization: Professional plots using Matplotlib and Seaborn

📊 Dataset Information

Feature	Description	Type
Age	Age of primary beneficiary	Numerical (18-64)
Sex	Insurance contractor gender	Categorical (male/female)
BMI	Body mass index	Numerical (15.96-53.13)
Children	Number of dependents	Numerical (0-5)
Smoker	Smoking status	Categorical (yes/no)
Region	Beneficiary's residential area	Categorical (4 regions)
Charges	Medical costs billed by insurance	Target Variable

Dataset Stats: 1,338 records • 7 features • No missing values • 1 duplicate removed

🚀 Quick Start

Prerequisites

Python 3.9+
Jupyter Notebook or JupyterLab

Installation & Setup

1. Clone this repository

git clone https://github.com/zyna-b/Insurance-Cost-Analysis-EDA.git
cd Insurance-Cost-Analysis-EDA

2. Create virtual environment

python -m venv venv_py39
# Windows
venv_py39\Scripts\activate
# macOS/Linux
source venv_py39/bin/activate

3. Install dependencies

pip install -r requirements.txt

4. Launch analysis

jupyter notebook insurance.ipynb

📈 Analysis Workflow

1. 🔍 Exploratory Data Analysis

• Data Inspection: Shape, types, missing values, duplicates
• Descriptive Statistics: Central tendencies and distributions
• Univariate Analysis: Individual feature distributions
• Bivariate Analysis: Feature relationships with target variable

2. 📊 Data Visualization

• Distribution Plots: Age, BMI, children, charges histograms with KDE
• Count Plots: Categorical variable frequencies
• Box Plots: Outlier detection and quartile analysis
• Correlation Heatmap: Feature relationship visualization

3. 🧹 Data Preprocessing

• Data Cleaning: Duplicate removal and type conversion
• Feature Encoding:
  • Binary encoding for gender and smoker status
  • One-hot encoding for region variables
• Feature Engineering: BMI categorization (Underweight, Normal, Overweight, Obesity)
• Standardization: StandardScaler for numerical features

4. 📊 Statistical Analysis

Correlation Analysis

# Key findings from Pearson correlation analysis
correlations = {
    'is_smoker': 0.787,      # Strongest predictor
    'age': 0.299,            # Moderate positive correlation
    'bmi': 0.198,            # Weak positive correlation
    'children': 0.068,       # Very weak correlation
    # ... additional features
}

Chi-Square Testing

• Purpose: Test independence between categorical variables and charges
• Significance Level: α = 0.05
• Results: Identified significant features for model inclusion

5. 🤖 Machine Learning Model

Linear Regression Implementation

from sklearn.linear_model import LinearRegression
from sklearn.model_selection import train_test_split

# Model training and evaluation
model = LinearRegression()
model.fit(X_train, Y_train)
predictions = model.predict(X_test)

Model Performance

• R-squared Score: 0.804 (80.4% variance explained)
• Adjusted R-squared: 0.799
• Train-Test Split: 80% training, 20% testing
• Random State: 42 (reproducible results)

🔍 Key Insights & Findings

💡 Business Intelligence

1. Smoking Impact: Smoking status is the strongest predictor of insurance costs
2. Age Factor: Older individuals tend to have higher insurance charges
3. BMI Influence: Higher BMI correlates with increased medical costs
4. Regional Variations: Geographic location affects insurance pricing
5. Family Size: Number of children has minimal impact on costs

📊 Statistical Discoveries

• Correlation Strength: Smoking status shows 0.787 correlation with charges
• Feature Importance: Age, BMI, and smoking status are primary cost drivers
• Data Distribution: Charges show right-skewed distribution (typical for insurance data)
• Gender Impact: Minimal difference in average costs between males and females

🛠️ Technologies & Libraries

Core Stack

import pandas as pd              # Data manipulation and analysis
import numpy as np               # Numerical computing
import matplotlib.pyplot as plt  # Data visualization
import seaborn as sns           # Statistical data visualization

Machine Learning & Statistics

from sklearn.linear_model import LinearRegression
from sklearn.model_selection import train_test_split
from sklearn.preprocessing import StandardScaler
from sklearn.metrics import r2_score
from scipy.stats import pearsonr, chi2_contingency

📁 Project Structure

Insurance-Cost-Analysis-EDA/
├── 📓 insurance.ipynb          # Main analysis notebook
├── 📊 insurance.csv           # Dataset (1,338 records)
├── 📋 requirements.txt        # Python dependencies
├── 📄 README.md              # Project documentation
└── 📁 venv_py39/             # Virtual environment
    ├── Scripts/              # Environment executables
    ├── Lib/                  # Installed packages
    └── Include/              # Header files

📈 Visualizations Included

• Distribution Analysis: Histograms with KDE for numerical variables
• Categorical Analysis: Count plots for sex, smoker, region, children
• Correlation Matrix: Heatmap showing feature relationships
• Box Plots: Outlier detection for numerical features
• Feature Engineering: BMI categorization visualization

🔬 Statistical Methods Explained

Correlation Analysis

• Pearson Correlation: Measures linear relationship strength (-1 to +1)
• Interpretation: Values closer to ±1 indicate stronger linear relationships
• Application: Identifying features most correlated with insurance charges

Chi-Square Testing

• Purpose: Tests independence between categorical variables and target
• Null Hypothesis: Variables are independent
• Decision Rule: Reject H0 if p-value < 0.05
• Business Value: Validates which categorical features significantly impact costs

Feature Engineering

• BMI Categories: Medical standard classifications
• Dummy Variables: Binary encoding for categorical features
• Standardization: Zero mean, unit variance for numerical features

🎯 Model Evaluation Metrics

Metric	Value	Interpretation
R-squared	0.804	Model explains 80.4% of variance
Adjusted R-squared	0.799	Accounts for number of predictors
Features Used	7	Optimal feature subset selected
Sample Size	1,337	After duplicate removal

🔮 Future Enhancements

• Advanced Models: Random Forest, Gradient Boosting, Neural Networks
• Cross-Validation: K-fold validation for robust performance metrics
• Feature Engineering: Polynomial features, interaction terms
• Hyperparameter Tuning: Grid search for optimal parameters
• Interactive Dashboard: Streamlit or Dash implementation
• Model Deployment: Flask API for real-time predictions

🤝 Contributing

Contributions are welcome! Please feel free to submit a Pull Request.

How to Contribute

1. Fork the repository
2. Create a feature branch (git checkout -b feature/AmazingFeature)
3. Commit your changes (git commit -m 'Add some AmazingFeature')
4. Push to the branch (git push origin feature/AmazingFeature)
5. Open a Pull Request

📄 License

This project is licensed under the MIT License - see the LICENSE file for details.

🙏 Acknowledgments

• Dataset Source: Kaggle Insurance Dataset
• Statistical Methods: Scipy documentation and best practices
• Visualization Inspiration: Seaborn gallery and matplotlib examples
• Machine Learning Techniques: Scikit-learn documentation

👨‍💻 Author

Zainab Hamid

• 🐙 GitHub: @zyna-b
• 💼 LinkedIn: Zainab Hamid
• 📧 Email: zainabhamid2468@gmail.com

📊 Keywords

insurance-analysis data-science machine-learning exploratory-data-analysis python pandas scikit-learn statistical-analysis data-visualization linear-regression feature-engineering correlation-analysis chi-square-testing jupyter-notebook healthcare-analytics

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