A poorly designed underwriting platform can lose a court case, says Clyde & Co

The way in which online underwriting platforms are designed and operated can adversely affect an insurer’s ability to defend itself in court, according to Clyde & Co.

In a seminar for insurance professionals in London last week, Clyde & Co singled out the arrival of the Insurance Act on the UK statue books as a reason to review underwriting platforms, with particular focus on the manner in which documentation is issued and information on a risk is collected.

Speaking at the seminar, Clyde & Co senior associate Dominic How (pictured) outlined a series of factors that have a powerful influence on an insurer’s ability to rely on its underwriting platform in a legal action.

These factors include where drop-down menus offering a choice of predefined options are used (for example, when describing the insured’s trade), it is important that there is also a free text box that can be used by a proposer in the event that the predefined options do not accurately describe the insured’s business

How’s comments came after Clyde & Co’s involvement in a long-running legal dispute in which the behaviour of an underwriting platform and the information it requested from the insured became a major feature in successfully declining a £2 million property claim.

According to How, the manner in which a platform gathers information and then responds to it can become a matter of intense scrutiny in a dispute. Because of this, underwriters should review the way platforms operate.

How said: “As more and more underwriting is conducted via online platforms, the way in which these systems behave will increasingly come under the courts’ scrutiny. 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.”

“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 went on to explain: “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.”

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Mark Dugdale