Three bottlenecks for businesses trying to understand insurance contracts: Evidence from eye-tracking analysis

Private Law Seminar

Please join us, in-person, for Professor Richard Hyde's seminar on 'Three bottlenecks for businesses trying to understand insurance contracts: Evidence from eye-tracking analysis’.

How do businesses engage with contracts? Contractual documentation forms a central part of way that behaviours are governed and are essential to the economic structures of modern society. Contracts form the basis of the rights and obligations assumed by businesses and individuals. This is particularly the case with insurance. Insurance contracts allow individuals and businesses to arrange their affairs to allocate risk (either to themselves or to others) as they see fit. In order for businesses to properly manage their risk, employees of the business must engage with, seek to understand and act upon their insurance policies. Contractual reading behaviour is often the subject of anecdotal speculation. However, empirical examination of the ways that businesses (and indeed individuals) read and understand the complex documents that define their rights and obligations is limited. This paper draws on empirical examination of the way that small- and micro-business owners and employees read and understand Business Interruption Insurance contacts using eye-tracking. Using the empirical evidence we show three areas where readers struggled to read and understand the contracts, make tentative suggestions of reasons for the processing difficulties demonstrated by the research participants and provide suggestions about how the drafting of contracts can be improved to make them more understandable.