Data Sheet - Tru Data Seals

23 May 2008

Reducing insurance dispute resolution costs – proving electronic document validity

David Ballard, consultancy director, Northdoor.

The challenge

The need to comply with directives aimed at improving efficiencies and risk management which are issued by regulators such as the FSA is driving the adoption of electronic processing and initiatives for contract certainty. For example, this March, the Market Reform Group (MRG) outlined how the London Insurance Market (LIM) plans to move from the current paper-based processes for handling endorsements to electronic processing using e-mail as the first step towards full ACORD messaging[1]. This is yet another area in which paper has been superseded by electronic processing; original premiums, new claims and bureau policy processes are already handled in this way.

Switching to electronic documents should lead to greater efficiencies for all brokers and insurers. However, because the wording of legal documents such as policies is often subject to negotiation, there can be several versions before a final one is agreed. Sometimes, it can be difficult to prove in law which is the authentic and valid version agreed by the parties. Brokers and insurers are therefore inclined to put more trust in printed, signed documents as evidence, preventing them from fully committing to adopting electronic processes.

Costly example

In recent years, there have been a number of high-profile claims disputes over the precise nature of the terms and conditions to which the parties have agreed.

For example, following the 9/11 terrorist attack on New York’s Twin Towers a dispute arose between the buildings’ leaseholder – property developer Larry Silverstein – and the insurance companies. One of the issues concerned whether this incident had been a single or a double event for claim purposes[2]. According to the media, no formal policy contract had been written, but the broker insisted the policy form he had sent defined such an occurrence as a single event. Silverstein, it is claimed, countered that the insurer had added the definition after the incident. His team offered as evidence a policy form without such a definition as the terms it understood to be in force. If the two plane crashes were considered two events then Silverstein could expect two payouts of $3.55 billion, rather than one. With inconclusive evidence, it took more than five years of legal wrangling before a payout of some $4.5 billion was finally agreed[3].

Contract certainty

One of the risks in switching to electronic documents is around how to determine which of several versions is the document to which the parties have agreed, the exact wording and the nature of the risks insured. Where several versions or iterations have existed and where millions of pounds are involved, it is easy to understand how a disagreement can arise over which copy is ‘legitimate and live’. Disputes could even arise around whether one party has fraudulently altered their copy to support an otherwise invalid claim.

To progress from paper-based processes insurers and brokers need to be able to trust electronic-based documents. They need contract certainty and protection from any risk of fraudulent tampering and from expensive legal challenges.

They need a way of verifying the true version of a policy in force at the time insured events occur, and exactly who agreed to what and when. The possession of such proof – a means of establishing what is known as ‘true data integrity’ – would safeguard the evidential strength and validity of a company’s digital data, making the truth clear and incontrovertible, and enabling any litigation to be resolved promptly and without significant legal costs.

Solutions

Today, there are true data integrity solutions available to address this challenge; solutions which can be used to seal, authenticate and prevent tampering with electronic documents of all file types.

Documents can be time-stamped and carry the electronic signature of all the parties involved. The best solutions are designed by reference to the BSI Code of Practice for Legal Admissibility and Evidential Weight of Information Communicated Electronically and may also have been awarded the CCT mark by CESG[4], the UK Government’s National Technical Authority for Information Assurance. Cable & Wireless uses a true data integrity solution and this method of ensuring the validity of electronic documentation is increasingly attracting the attention of the financial markets and insurers, where FirstCity insurance is a user. In fact, according to one vendor, some 20 million transactions are already protected each year by its product alone.

The actual process of ensuring data integrity is simple, typically operating via a plug-in to an email system such as Microsoft Outlook. In one true data product, the user creates an email, attaches the electronic documents and selects the option to ‘seal and send’ them. The user’s name is captured and the documents are sent to the solution vendor’s independent, secure server, where they are time-stamped and a unique security algorithm added, completing the sealed record. The system then places the sealed record in an ‘envelope’ and sends it to the designated recipient. The seal remains intact within all subsequent copies of the documents but will be broken if any changes are made to them. The recipient is able to verify the integrity of the email and its attached documents or copies made, by clicking on an icon which runs a process to compare the algorithm in the recipient’s documents to that of the sealed ones. If the two match, then the documents are accurate and authentic.

Not only does a true data integrity solution provide formal evidence of document authorisation and evidential proof of contract certainty – saving time and money if a dispute arises – but it also increases trust in and adoption of electronic documentation, which will in turn lead to reduced paper management and storage costs.

The good news is, insurers and brokers do not need to be IT experts to implement such systems into their internal processes. Systems consultancies, experienced in the world of insurance workflows and in true data integrity solutions, can deliver a low-cost prototype. Once proven, full implementation is not complicated and using an experienced consultancy it should take a matter of days, including staff training. Ongoing use is then inexpensive; a pay-per-use model is available from at least one vendor.

With the increasing use of electronic documents in insurance, providers in all sectors must recognise the challenges of proving document authenticity and validity.  Having researched true data integrity solutions, Northdoor is confident that they will become indispensable to the insurance sector.

David Ballard is a founding member of Northdoor, an IT consultancy of more than 110 people based in London.  Northdoor offers lifecycle IT solutions; consultancy, design, procurement & build, implementation and lifetime support of IT environments – to all sectors with an emphasis on insurance and financial services. David can be reached via www.northdoor.co.uk

[1] http://www.marketreform.co.uk/

[2] http://news.bbc.co.uk/1/hi/business/3089447.stm

[3] http://news.bbc.co.uk/1/hi/business/6687239.stm

[4] http://www.cesg.gov.uk   and   http://www.cabinetoffice.gov.uk