April 23, 2024

Data protection principles in the insurance industry

Data protection principles in the insurance industry

The insurance industry is highly regulated, and increasingly insurance data is falling under the purview of national regulators. A range of regulations govern the collection, processing, and storage of insurance data. In this article, we’ll explore some of these regulations and demonstrate how InCountry can assist in ensuring compliance with relevant data protection laws through our Data-Residency as-a-Service solution.

Context of data protection for insurance companies

One of the primary challenges faced by insurers is the sheer volume and diversity of data they collect and process. From policy applications and claims forms to underwriting assessments and customer interactions, every touchpoint generates valuable data that needs to be handled with care. Moreover, with the proliferation of connected devices and IoT (Internet of Things) technology, insurers are tapping into new sources of data, thereby presenting more opportunities and also challenges for data protection in the insurance industry.

In various jurisdictions, laws set stringent standards for data privacy and security.

These regulations impose obligations on insurance companies regarding the collection, processing, and sharing of personal data. They require transparent communication with policyholders regarding data usage, explicit consent for data processing activities, and robust measures to protect against data breaches.

Despite strides in regulatory compliance and technological innovation, data protection remains an ongoing challenge for insurance companies. The evolving threat, characterized by sophisticated cyber threats and data breaches, necessitates continual adaptation and enhancement of security measures.

To effectively safeguard sensitive information, insurance companies must implement robust security measures and data governance frameworks. This entails encrypting data both in transit and at rest, implementing access controls to restrict unauthorized entry, and regularly auditing systems for vulnerabilities. 

Why is data protection important?

The insurance sector must prioritize data protection due to its criticality. In this section, we will discuss a few reasons why data protection is essential for businesses.

  • Confidentiality of personal information

It’s no secret that insurance companies collect, process, and store the private information of clients. This makes them very attractive to cyber hackers. Consequently, an insurance company must prioritize data protection to ensure that the information of their clients remains private.

  • Regulatory requirements

Several regulatory requirements in this space have made it critical for insurance companies to ensure clients’ data are safe. A few of such regulatory requirements include the GDPR, PIPL, and the HIPAA (Health Insurance Portability and Accountability Act). Noncompliance with these regulations will attract consequences for such insurance companies.

  • Risk management

Implementing strong data protection measures is critical for insurance companies to reduce the likelihood of data breaches, cyber-attacks, and other security incidents. These breaches can lead to financial losses, legal liabilities, etc. That is why having robust data protection is necessary for effective risk management.

  • Trust & reputation

These are fundamental values that sustain the insurance industry. Clients will only sign up with an insurance service provider because they are confident that the service provider will keep their information safe, and fulfill their promised payments when needed. If clients can no longer trust an insurance company to protect their information, they will quickly move away to other companies that can guarantee that.

  • Fraud prevention

Insurance fraud poses a substantial challenge to the industry, resulting in billions of dollars in losses each year. Insurance companies must rely on robust data protection measures to combat this challenge. These measures include identity verification, authentication protocols, and sophisticated fraud detection algorithms. By implementing such measures, insurers can safeguard the integrity and accuracy of the data they handle, thus significantly reducing the risk of fraudulent activities.

Insurance data protection and privacy laws

As a business leader in the insurance industry, it’s important to be familiar with the various data protection laws that apply. While there are many such laws, we will focus on some of the major insurance data privacy laws. These laws also outline the data residency requirements by country.

General Data Protection Regulation (GDPR)

The General Data Protection Regulation (GDPR) is a comprehensive legislation on data protection that was established by the European Union (EU) in 2018. It extends its jurisdiction to all entities handling the personal data of individuals within the EU, irrespective of their geographical location. It imposes strict requirements on the collection, use, and protection of personal data, with significant implications for the insurance industry. Below is the General Data Protection Regulation for Insurance Companies operations:

  • Privacy rights

The GDPR grants individuals enhanced privacy rights, including the right to access their data held by insurance companies, the right to request corrections or deletions of inaccurate or outdated data, and the right to object to the processing of their data for certain purposes.

  • Lawful basis for processing

Insurance companies must establish a lawful basis for processing personal data under the GDPR. This may include obtaining explicit consent from policyholders for processing their data, fulfilling contractual obligations (such as issuing insurance policies), complying with legal obligations (such as regulatory requirements), or pursuing legitimate interests (such as fraud prevention or risk assessment).

  • Data minimization and purpose limitation

It mandates insurance companies to limit the collection and processing of personal data to what is necessary for a specific, legitimate purpose. Companies must also ensure that data is not retained for longer than necessary and is only used for the purposes for which it was collected.

  • Security and accountability

Insurance companies are required to implement appropriate technical and organizational measures to ensure the security and confidentiality of personal data. This includes measures such as encryption, access controls, data encryption, and regular security assessments. Companies must also maintain records of their data processing activities and be able to demonstrate compliance with the GDPR’s requirements.

  • Cross-border data transfers

The GDPR places extra requirements for the transfer of personal data outside the EU to countries or regions that do not provide an adequate level of data protection. Insurance companies transferring personal data to such countries must ensure that appropriate safeguards are in place, such as standard contractual clauses or binding corporate rules.

  • Data breach notification

In the event of a data breach involving personal data, insurance companies are required to notify the relevant supervisory authority without undue delay, typically within 72 hours of becoming aware of the breach. They must also notify affected individuals if the breach is likely to result in a high risk to their rights and freedoms.

Health Insurance Portability and Accountability Act (HIPAA)

The Health Insurance Portability and Accountability Act (HIPAA) was introduced as a federal law in the United States in 1996. Its core objective is to safeguard individuals’ medical information and guarantee the privacy and security of their health data. Although HIPAA is not exclusive to the insurance sector, its ramifications are substantial for insurance companies, especially those engaged in health insurance and healthcare operations. We shall review some of the key provisions of the HIPAA as they relate to the insurance industry below:

  • Protected Health Information (PHI)

Protected Health Information (PHI) is subject to stringent protection measures under the HIPAA. This includes any individually identifiable health information that covered entities or their business associates hold or transmit. PHI includes various types of data, such as medical records, health insurance details, payment records, and other healthcare-related information.

  • HIPAA-covered entities

Insurance companies involved in specific healthcare-related operations fall under the category of HIPAA-covered entities. This designation includes health insurance providers, healthcare clearinghouses, and certain healthcare plans. As such, these entities must adhere to HIPAA regulations concerning the privacy and security of Protected Health Information (PHI).

  • Privacy rule

HIPAA Privacy Rule stipulates guidelines for safeguarding individuals’ Protected Health Information (PHI) while imposing restrictions on the utilization and disclosure of PHI without patient consent. Insurance companies are required to adhere to the Privacy Rule while managing PHI within their operations, encompassing tasks such as underwriting, claims processing, and customer service activities.

  • Security rule

The HIPAA Security Rule outlines directives aimed at preserving the confidentiality, integrity, and accessibility of electronically Protected Health Information (ePHI). Insurance companies are mandated to establish administrative, technical, and physical safeguards to shield ePHI from unauthorized access, usage, or disclosure.

  • Business associate agreements

Insurance companies frequently collaborate with third-party vendors, including claims processors, consultants, and software providers, who may access Protected Health Information (PHI) on their behalf. HIPAA mandates that insurance companies establish Business Associate Agreements (BAAs) with these vendors. These agreements outline the vendors’ obligations for safeguarding PHI and ensuring adherence to HIPAA regulations.

  • Breach notification

HIPAA regulations stipulate that covered entities and their business associates must promptly inform affected individuals, the Department of Health and Human Services (HHS), and possibly the media in case of a breach involving unsecured Protected Health Information (PHI). Insurance companies are required to establish policies and procedures designed to detect, investigate, and report breaches of PHI in a timely fashion.

  • Enforcement & penalties

The Office for Civil Rights (OCR) within the Department of Health and Human Services (HHS) oversees the enforcement of HIPAA regulations and conducts investigations into allegations of non-compliance. Insurance companies that are determined to have violated HIPAA may be subject to various consequences, including civil monetary penalties, corrective action plans, and damage to their reputation.

Personal Information Protection Law (PIPL)

The Chinese Personal Information Protection Law (PIPL), implemented in November 2021, imposes more stringent regulations concerning the handling of personal data by companies. This has notable implications for the insurance sector operating within China. Here are key provisions of the law that you should be familiar with:

  • Data subject rights

The PIPL guarantees private individuals certain rights that insurance companies are bound to comply with. These rights include the right to access, rectify, or erase the personal data held by insurance companies under specific circumstances. Failure to comply with this will attract penalties.

  • Consent & transparency

Under the PIPL, obtaining clear and informed consent from customers before collecting and utilizing their data is paramount. Insurance companies are required to be transparent regarding the purposes of data collection, storage methods, and any potential sharing with third parties.

  • Data minimization

Like most data protection laws, the PIPL insists on collecting only the personal information essential for legitimate insurance purposes. Such information should be deleted as soon as the purpose for its collection has been completed.

  • Adequate security

Stringent security measures are obligatory to safeguard customer data from unauthorized access, disclosure, or breaches under the PIPL. These measures encompass data encryption, access controls, and incident response protocols. Insurance companies are expected to ensure these for the client data in their custody.

To learn more about the Chinese PIPL, you may wish to read our article that discusses this subject and the implications it could have for your insurance business.

India’s Digital Personal Data Protection Act (DPDP 2023)

Introduced in 2023, this data privacy law establishes guidelines for insurance companies that collect, process, or store the personal information of Indian residents. Below, we will outline some of the key provisions of this privacy law.

  • Consent requirements

This is a critical requirement under the DPDP Act before an insurance company can collect, process, or store the personal information of Indian residents. The goal is to ensure that clear and informed consent from individuals is obtained before collecting their data.

  • Data subject rights

Like most recent privacy laws, policyholders are given the right to access, rectify, or erase their personal information retained by insurance companies under the DPDP Act. This reinforces individual control over their information.

  • Data minimization

Insurance companies are only permitted to collect personal data that is strictly necessary for underwriting, claims processing, and other legitimate insurance purposes. Besides what is required for their business process, any other data collection is explicitly prohibited.

  • Data localization requirement

The DPDP Act requires certain categories of personal data to be stored within India. This could potentially affect how insurance companies handle data storage and access, especially when collaborating with third-party vendors situated abroad.

  • Security protocols

The DPDP encourages insurance firms to have standard security protocols in place to ensure security for the data in their custody. These protocols will enhance the security of the data in their custody and reduce the possibility of data breaches.

Main challenges regarding data protection in the insurance industry

Although it is clear that data privacy is needed in the insurance industry, a few factors continue to limit data protection in this industry. In this section, we shall identify a few of such factors.

  • Data security

Safeguarding customer data from unauthorized access, breaches, and cyber-attacks poses a significant challenge for insurance companies. Given the increasing sophistication of cyber threats, insurers must consistently invest in robust cybersecurity measures. This includes implementing encryption, multi-factor authentication, and intrusion detection systems to protect sensitive information.

  • Compliance with data protection regulations

The data protection law landscape is ever-evolving. New privacy laws continue to emerge while old laws are being reviewed and updated accordingly. In addition to these complications, the privacy requirements differ across several countries. Keeping up with these frequent changes becomes a challenge for an international insurance firm with operations in various countries.

  • Third-party risk management

Insurance companies frequently depend on third-party vendors and service providers for various facets of their operations, including claims processing, underwriting, and IT support. However, outsourcing data processing activities introduces additional risks, as third parties may access sensitive customer information. To effectively mitigate these risks, insurers must implement stringent vendor management practices and contractual safeguards.

  • Data breach response

Despite implementing preventive measures, the possibility of a data breach occurring may not be eliminated. Therefore, it is important to have effective incident response plans and protocols in place. These measures facilitate the prompt detection and response to data breaches, thereby minimizing the impact on affected individuals and mitigating potential legal and reputational consequences.

  • Client expectation

With consumers becoming increasingly aware of their privacy rights and demanding greater transparency and control over their data, insurance companies must adjust their practices accordingly. Meeting consumer expectations for data protection and privacy requires clear communication, user-friendly privacy policies, and mechanisms for obtaining informed consent and addressing data subject requests effectively.

These are the key challenges regarding data protection in the insurance industry. Addressing these challenges requires a comprehensive approach that encompasses technological investments, regulatory compliance efforts, organizational policies, and cultural changes aimed at fostering an increased commitment to data protection and privacy within the insurance industry.

How InCountry helps insurance companies stay compliant with data protection laws

Data protection for insurance companies is paramount given the sensitive nature of the information involved. However, achieving compliance can be challenging due to the varying and sometimes conflicting regulations across different regions. At InCountry, we recognize this struggle and have tailored a cloud-based solution to tackle it head-on. Our Data-Residency-as-a-Service solution allows you to securely store your client’s data in the very country it was gathered while maintaining seamless access from anywhere in the world.

Our state-of-the-art security measures, including advanced data firewalls, fortified data vaults with encryption and access controls, as well as rigorous authentication and authorization protocols, guarantee top-tier protection for your valuable data assets.

Ready to experience the unparalleled value we can bring to your insurance company? Reach out to us today and let us demonstrate the impact of our solutions.