Wellness apps and fitness trackers: Why insurers love your smartwatch

If you’re looking for the must-have object for the era of self-optimisation, designed to ensure your life runs as efficiently as possible, look no further than the smartwatch.

The device on your wrist can track your sleep, your heart rate, your exercise regime, your menstrual cycle – and in return for handing over your most personal information, it delivers better, more accurate readings of your health prospects.

But if the collection and analysis of that personal data is good for you, it’s even better for companies that get their hands on it – in particular, insurance firms assessing how much a policy will cost them. By purchasing the data generated by a smartwatch – or, even better, by directly compiling the data that you hand over, voluntarily, through an app – some of Australia’s largest insurers get a clear insight into your lifestyle and the likelihood of you developing a debilitating illness.

The personal information collected by your smartwatch or fitness wearable can deliver precious insights for insurers.

In fact, the only thing now standing between insurers and the unimpeded use of health and fitness data collected by smartwatches is industry regulation to prevent discrimination. No insurance company can legally deny you a policy based on data generated by a Fitbit, an Apple Watch or a Garmin. Which makes insurers’ fascination with feeding smartwatch-generated health data into their algorithms all the more intriguing, according to privacy advocates.

Many health insurers now offer health and wellbeing mobile apps – often with the incentive of clients earning rewards for using them. The drive is marketed as a way to personalise insurance products and offerings. It’s all about convenience and an improved experience – that’s the sell.

But there are growing concerns about how people’s personal information is being used. And while health insurers can’t legally tap into the data to discriminate against clients, the industry’s hunger for personal information comes, nonetheless, with significant privacy considerations.

One such concern is consumers’ ability to opt out of health-data collection. If a product such as a smartwatch can only be used on the condition that the data it generates be shared, does the consumer have a choice?

It’s a question that’s playing out against the backdrop of insurers using the greater levels of data available on consumers to move away from a traditional “risk pooling” model – in which their overall risks are considered against the prospects of the average consumer – toward a future of cherry-picking the healthiest individuals as clients.

Australia’s ageing, ill-equipped privacy law and its slow-paced review are driving up the risk of sensitive personal data generated by a smartwatch being misused by commercial interests. Without the protections of strong privacy rules comparable to the European Union’s General Data Protection Regulation or even New Zealand’s recently updated Privacy Act, the privacy challenges posed by companies’ use of personal data aren’t likely to be resolved.

Privacy risks

Whether it’s a mobile phone application linked to your car that monitors your driving efficiency, or a health insurance wellness app linked to your smartwatch, the rise in data collection and a possible move towards the aggregation of that data is happening fast.

Yet the privacy risks that come with the flow of data from wearable technology to insurers don’t tend to attract much media attention; nor does the question if consumers downloading applications or linking devices to insurers are in a position to offer informed consent.

Regulators and researchers appear alive to the privacy risks posed by this kind of data flow, however. The Australian Competition & Consumer Commission (ACCC), which appears increasingly alert to privacy issues, has sounded the alarm over the prospect of Big Tech attempting to monetise health and fitness datasets collected and compiled through smart devices.

In late 2019, days after Google announced its $US2.1 billion ($3 billion) global acquisition of smartwatch maker Fitbit, the ACCC’s then-chair Rod Sims said that any assurance Google offered about not on-selling Fitbit data was essentially worthless. The global deal closed in January, even though the ACCC was conducting an enforcement probe of the deal. That probe, which takes in both competition and consumer considerations, is ongoing.

Discounts for exercising

Australian insurers AIA and NIB as well as airlines such as Qantas run wellness apps offering rewards for users in varying forms. Health and life insurer AIA describes its AIA Vitality app as “a personalised, science-backed health and wellbeing program that […] incentivises you to move more, eat well and complete regular health checks”.

The app, available for people with AIA Health and AIA Life Insurance policies, is linked to a compatible smart device. Users progress through a rewards program, potentially earning a 20 per cent discount on their premium.

Circumventing regulatory restrictions, these rewards are crucial. Australian health insurers are governed by a community rating system – which means that, regardless of health status, age, gender or any other factor, individuals will be charged the same premium as every other member living within their state.

They can, however, offer a discount if they know you’re exercising more or eating well. But the regulatory framework means that the opposite behaviour – someone moving less and eating an unhealthy diet – cannot lead to policy increases or, even, to the denial of a policy.

Indirect pricing effects: Moving and having a healthy lifestyle can earn you discounts from your insurer.

In response to our written questions, NIB chief executive for Australian residents health insurance Ed Close stressed that the insurer’s app was offered “at no additional cost” to users.

“When a NIB member uses our ‘Well with NIB’ app, we may collect personal information to send communications to our members which contain personalised health information, products, and services,” Close said.

“We may also use a member’s personal information to identify areas where they may benefit from one of our health management programs,” he said, adding that it was up to the member to decide whether to participate. What’s more, members may request that their personal information be erased from the app if they choose to no longer use it, NIB said.

The insurer was adamant that this information wasn’t being used to price a product, but merely to customise client offers.

However, the line between pricing and personalisation is blurred when a policy tailored to one’s lifestyle brings with it the benefit of a future discount. Even if these discounts benefit the consumer, they establish a nexus between health data and pricing. After all – a discount amounts to a change in price.

‘We’ve got no means to know how pricing of insurance works because companies keep it completely secret.’

Data generated by wearable devices offers insurers a big advantage. Not only can they get to know their customers better, but they can also fine-tune algorithms to profile people in a more detailed way. How those profiles will be used in the future is unclear.

Industry observers agree that Australian insurers are already competing to find the cheapest clients – that is, the policyholders less likely to fall ill and cost the insurers. Wearable technology speeds up that race, putting those with the most data at a competitive advantage.

Katharine Kemp, a law lecturer at the University of New South Wales, says here is “the potential for insurers to be discriminating and even excluding [based on] health indicators or activity levels they’re picking up from the device.”

‘Intense surveillance’

And in the longer term, Kemp says, a company could apply data to artificial intelligence and make “inferences and predictions about the consumer’s future health; possibilities and probabilities that the consumer themselves might not know about [that] could be used against the consumer.”

“Some discrimination or exclusion will be hard to discover because the company will be using targeted advertising, and it can just decide not to show its online ads and offers to ‘undesirable’ consumers,” Kemp said. “If you move to this intense surveillance, monitoring and pervasive data collection, you move towards cherry-picking and discrimination,” she added.

With opaque privacy agreements and statements, any consent a consumer gives to hand over data generated by a smartwatch is probably ill-advised, she finds.

“It’s entirely disingenuous to say consumers are consenting to something when they don’t understand it and you have to consent to a bunch of vague extra purposes when you only want to agree to what’s necessary to buy the product,” Kemp says.

The issue of personal data flowing from insured to insurer goes beyond wearable watches and insurance industries, according to research published this month.

Zofia Bednarz, a lecturer in commercial law at the University of Sydney, has looked at the collection of data as part of broader research project looking at insurance law and anti-discrimination. In an interview, Bednarz pointed to loyalty programs run by companies that also offer insurance products, such as Qantas and supermarket owner Coles. Both companies offer loyalty programs as well as products such as home, health and pet insurance.

Bednarz analysed privacy policies in place around a year ago and said their wording meant the companies might be changing and exchanging data between loyalty schemes and insurance products. “We’ve got no means to know how pricing of insurance works because companies keep it completely secret,” she said.

What’s clear is that insurers show no sign of slowing their pursuit of data, and the regulatory ambiguity underlines the urgency to update Australia’s 1988 Privacy Act. Progress on the review has been slow — something that Australian Privacy Foundation Chair David Vaile says has left the use of data by insurance companies as both a timebomb and “a honeypot.”

“It’s so rich and so attractive that even if it’s not being abused in this instant, it lures in ostensibly straight operators and scammers [alike],” Vaile said.

Laurel Henning reports on regulatory affairs for LexisNexis’ MLex.

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