How to beat the fitness trackers (for cheaper health insurance)

A couple of weeks ago, I wrote about a Swiss insurer trialling the use of fitness tracking data (such as from a FitBit or Apple Watch) to separate the high-risk and low-risk policy-holders. It didn't take long for someone to come up with ways to beat the system:

At Unfit Bits, we are investigating DIY fitness spoofing techniques to allow you to create walking datasets without actually having to share your personal data. These techniques help produce personal data to qualify you for insurance rewards even if you can't afford a high exercise lifestyle. 

Our team of experts are undertaking an in-depth Fitbit Audit to better understand how the Fitbit and other trackers interpret data. With these simple techniques using everyday devices from your home, we show you how to spoof your walking data so that you too can qualify for the best discounts.

Watch the video on the site, and you will get a feel for what they are proposing. This is the sort of reaction that we might expect - as soon as fitness tracking becomes worth real money (in terms of lower health insurance premiums), that creates an incentive to try and beat the system.

The trouble is that it puts us right back where we started, with a pooling equilibrium (the usual consequence of adverse selection). The fit and healthy won't be able to use fitness tracker data to separate themselves from the unfit and less healthy. This will lead to higher insurance premiums for the fit and healthy, as the insurance companies will have to assume that everyone is relatively high risk. Essentially, the fit and healthy end up subsidising the insurance of the less healthy.

Note that this is also an example of moral hazard - where, after an agreement is reached, one of the parties (the insured) has an incentive to modify their behaviour (by employing the Unfit Bits' tricks) to gain an advantage (lower insurance premiums) based on the terms of the agreement (if premiums are based on how much fitness activity you engage in), and to the detriment of the other party (the insurance company).

Note also that FitBit doesn't have any incentive to stop people from 'cheating'. They aren't paid by the insurance companies (yet!). But how long before the insurance companies start to develop their own proprietary fitness trackers? Or maybe one of them will buy out FitBit?

[HT: Thomas Lumley at StatsChat]

Read more:

• Why your Fitbit or Apple Watch could soon get you cheaper health insurance
• Could technology eliminate moral hazard in car insurance?
• Is there adverse selection in the life insurance market?