Global law firm Clyde & Co has warned that poorly designed and operated online underwriting platforms can threaten a re/insurer’s ability to defend itself in court.
The firm claimed that it is critical that re/insurers review the manner in which these platforms issue documentation and collect information on risks, as these processes can become a matter of intense scrutiny in legal debates.
It noted that such an evaluation is particularly important given the arrival of the Insurance Act 2015, which has altered the way courts assess breaches of warranty, fraudulent claims, and fair presentation of risk related to a policy, often in favour of the insured.
Clyde & Co Senior Associate Dominic How outlined a number of factors that can have a powerful influence on a re/insurer’s ability to rely on its underwriting platform in a legal action.
“As more and more underwriting is conducted via online platforms, the way in which these systems behave will increasingly come under the Courts’ scrutiny,” said How. “Because of this, it’s vital that the processes and language of these systems are both understandable to a judge and are robust enough to hold up under legal examination.”
He continued: “The risk is that platforms that are too linear and too rigid in their processing can weaken the underwriter’s case in the event that a policy is avoided. The Insurance Act’s insistence on proportionate remedies in the event of misrepresentation makes the need for clear evidence of the underwriting process more important when the insurer seeks to validate their proposed remedy.”
How’s comments follow a protracted legal battle that involved Clyde & Co successfully declining a £2 million property claim based on misrepresentation of risk through an underwriter’s online platform.
How suggested that re/insurers needed in particular to reassess the wording of questions and statements of fact on their online platforms, as well as including reminders about fair presentation of information and considering the way warranties relate to other sections of the policy.
Drop-down menus and predefined options should also be used cautiously, and should always include a customisable option for instances in which options do not accurately reflect an insured’s status.
Additionally, How recommended that endorsements and bolt-on clauses be made consistent with other aspects of a policy’s wording, and suggested that policies should include triggers to refer a risk to review by a human underwriter.
How explained: “When designing these platforms, insurers need to think carefully about how they might be interpreted in legal actions. How and when will human intervention be triggered? If none of its pre-defined 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.”
