NAIC’s New Rules: Challenges, Solutions

For security and compliance professionals, new regulatory standards can be a stark reminder that the to-do list is long and the day is short.

For security and compliance professionals, the announcement of new regulatory standards can be a stark reminder that the to-do list is long and the day is short. But with careful preparation and concerted, coordinated efforts to mature governance, risk management and compliance (GRC) activities, compliance and security teams can face new rules and standards with confidence. After many iterations and comment periods, the National Association of Insurance Commissioners (NAIC) announced the adoption of the Insurance Data Security Model Law in October 2017. The model law — which encompasses rules for licensed entities about data security and data breach investigations and notifications — establishes more rigorous guidelines for the insurance industry. It shares many similarities with the New York State Department of Financial Services (NYDFS) cybersecurity requirements for financial services companies, currently considered to be the highest bar — and a best practice — so the NAIC's model law is likely to be adopted by many states as the governing standard. The NAIC’s rules specify information security programs should be based on “an ongoing risk assessment, overseeing third-party service providers, investigating data breaches and notifying regulators of a cybersecurity event.” In particular, take a close look at Section 4: Information Security Program. It details implementing a program and the requirements for assessments, reporting, audits, policies and procedures. It sounds straightforward on the surface but grows in complexity the more you read; you need to not only identify internal and external threats but also assess the potential damage and take active, concrete steps to manage the threats. Section 4 also calls for more accountability when it comes to protecting data — each insurer must submit an annual statement by February 15 certifying compliance with Section 4 or identifying areas that need improvement, as well as remediation plans. See also: Insurance Is Not a Magazine Subscription It is important to note that the insurance industry has unique challenges around internal risk, third parties and intricately collaborative processes. Many entities and individuals are involved in a single claim: brokers, dealers, agents, actuaries, adjustors and claims processors. This creates more room for error, more potential gaps in security coverage and more difficulty managing contributors. Comprehensive procedures supported by integrated risk management technology solutions will help weave a tighter web. Renewed Focus on Third Parties As is the case with many of the major cyber security and data privacy frameworks (e.g., HIPAA, NYDFS, GDPR), the NAIC’s model law gives special attention to required oversight of third-party providers. Licensed entities are responsible for ensuring that third parties implement administrative, technical and physical measures to protect and secure the information systems and nonpublic information they hold or have access to. Meeting these requirements means licensed entities need to conduct assessments to ensure third parties are following security, privacy and notification guidelines. In Section 4.c.: Risk Assessment, it stipulates identifying threats by means of an ongoing assessment and an annual review of systems, controls, processes and procedures. Developing a comprehensive and streamlined system for vendor risk management is an increasingly critical component of both security and compliance programs — especially for large enterprises and those with complex partnership and outsourcing structures. Incident Response is Key The NAIC’s model law also specifies requirements for incident investigations and mandates that breaches are reported to the commissioner within 72 hours. In this notification, insurers must provide as much information as possible, including: the date of the breach; how the information was exposed; the types of information exposed; the period during which the system was compromised; planned remediation efforts; a copy of the company's privacy policy; and more. Additionally, licensees must notify consumers of the breach as their state's data breach notification law requires. It will be nearly impossible to meet these demands if your security information is outdated, incomplete or difficult to pull together. Expedient incident response can have a significant effect on outcomes. If you can quickly coordinate clear, accurate communications to regulators, third parties and customers about a breach or cyber attack, you can contain reputational damage, protect end-users and prove negligence was not a factor. See also: It’s Time to Act on Connected Insurance How to Become Prepared — and Stay that Way While some of the specific requirements of NAIC’s new model law might cause alarm, most insurance businesses already have well-defined processes and controls. The need to keep sensitive customer data secure and private isn’t new, and high-profile data breaches (e.g., Equifax, Anthem, Aetna) keep a spotlight on the consequences of failing to do so. Licensed entities are most likely to be challenged by the outer ends of the integrated risk management spectrum — the granular details of controls, policies and procedures on one end as well as the development of a sustainable security culture on the other. Both can be enhanced and reinforced through an enterprise-wide, technology-driven approach to GRC efforts. By implementing a centralized integrated risk management platform, insurance organizations can move away from fragmented manual processes (spreadsheets and email) and toward higher degrees of automation and analytics. The difficulty of meeting the NAIC’s requirements depends on the maturity of a company's security and compliance program. Companies that are already using an integrated risk management platform will easily be able to identify the gaps in compliance and efficiently make needed changes to achieve compliance. Those who do not have mature programs in place will have a longer path, from reviewing the requirements and identifying compliance gaps to the challenging goal of creating a culture of security.

Sam Abadir

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Sam Abadir

Sam Abadir is vice president of industry solutions at Lockpath. He has more than 20 years of experience helping companies improve processes, identify performance metrics and understand risk.

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