Underwriting platforms - legally risky?
According to global law firm Clyde & Co, a poorly designed underwriting platform has the potential to lose an insurer a court case.
According to global law firm Clyde & Co, a poorly designed underwriting platform has the potential to lose an insurer a court case.
Clyde & Co – which has been involved in a long-running legal case in which an insurer’s underwriting platform was a key point of contention – warns that the implementation of the Insurance Act should be motivating insurers to review the design and operation of such platforms, specifically focusing on how documentation is issued and how the platforms collect risk information. Dominic How, Senior Associate at the firm, recently told a seminar in London that the methodology by which a platform gathers and responds to information can have a major bearing on a dispute.
“As more and more underwriting is conducted via online platforms,” he said, “the way in which these systems behave will increasingly come under scrutiny. Because of this, it’s vital that the processes and language of these systems are both understandable to a judge and robust enough to hold up under legal examination.”
He advised insurers to review the wording of questions in proposals and statements of facts; the declarations that remind insureds of their responsibility to fairly present risk information; endorsements or bolt-on clauses that are inconsistent with policy wording; the way that warranties link to elements of policies; triggers that refer risk to human underwriters for review depending on certain responses; and drop-down menus that offer various predefined options. These menus must include, said How, a free text box that insureds can fill in if the options available are not sufficient. Platforms, he said, risk being ‘too linear and too rigid in their processing’, which can weaken an underwriter’s case in court.
“When designing these platforms, insurers need to think carefully about how they might be interpreted in legal actions,” How went on to say. “How and when will human intervention be triggered? If none of its predefined options are accurate, does the insured have the ability to declare this and provide additional information? Does the system make clear the insured’s responsibilities and the need to declare anything they think may be material and how this information will filter through to the actual underwriter in the event that a referral is generated? These will all be important in a legal dispute.”