Between March 2022 and March 2023, the average cost of a data breach in the insurance industry was $5.9 million. This cost includes expenses associated with cybersecurity detection and escalation, customer notifications, business disruptions, and post-breach response.
The insurance sector is among the most affected by data breach losses. In response, many insurers and wholesale agencies are focusing on improving their cybersecurity efforts by implementing more robust measures for mitigating potential security breaches.
A key strategy the industry is using to protect customer data from a potential breach is to ensure that the third-party vendors/systems that carriers and wholesalers integrate with (e.g., emerging InsurTech capabilities and enterprise applications/platforms) are SOC 2 Type II compliance certified.
Increased Technology Equals Greater Risks
Technology has become a game-changer for the insurance industry, helping carriers and wholesalers automate and streamline many business processes and workflows.
The InsurTech companies that make this all happen know that the industry handles vast amounts of sensitive, personally identifiable information (PII) and financial data, making it a prime target for cyberattacks.
What are the two types of SOC 2 compliance certification?
SOC 2 Type I compliance certification evaluates a company’s existing systems and addresses internal controls to determine whether their processes are vigorous enough to meet specific security and trust standards.
SOC 2 Type II compliance certification details and tests the actual operational effectiveness of those systems.
Today, SOC 2 Type II compliance certification is considered the gold standard for InsurTech businesses that outsource technologies and other data-related services in the industry—such as data hosting and processing and software-as-a-service (SaaS).
How does SOC 2 Type II compliance work?
SOC 2 Type II compliance uses an auditing procedure developed by the American Institute of CPAs. It was created to ensure that third-party service providers and vendors in the financial and insurance industries are proactive in securely managing customer data to protect the interests of their companies and the privacy of the clients they serve.
Simply put – SOC 2 Type II compliance is helping insurance carriers and wholesalers ensure that the third-party tech companies they partner with have security measures in place to:
- Protect sensitive customer data
- Prevent potential financial losses
- Build trust with policyholders & stakeholders
The certification process begins with an audit to establish the baseline criteria for how companies manage their customer data. The audit is based on five trust service principles: security, availability, processing integrity, confidentiality, and privacy—all unique to each organization.
- Security: Ensures that systems are protected against unauthorized access.
- Availability: Ensures that systems are available for use in accordance with the agreement.
- Processing integrity: Ensures that system changes are complete, accurate, timely, and authorized.
- Confidentiality: Ensures that all information remains confidential and protected as agreed on.
- Privacy: Ensures that all information is collected, used, retained, disclosed, and disposed of in accordance with the company’s privacy notice and in compliance with industry-sanctioned, generally accepted privacy principles.
During the audit process, systems are reviewed by an external third party to ensure compliance with the established principles. After approximately 6 to 12 months, an audit report is generated to verify the actual effectiveness of all applicable processes and procedures.
What Are the Advantages of SOC 2 Type II Compliance?
Proactive InsurTech companies are responding to the increase in cybersecurity threats by investing in more advanced security measures and obtaining SOC 2 Type II compliance certification.
This certification, which is a testament to the highest standards of data security and privacy, is helping carriers and wholesale agencies move forward with InsurTech capabilities – without putting customer information at risk.
An InsurTech company that has achieved SOC 2 Type II compliance certification brings several key benefits to insurance carriers and wholesale agencies, including:
- Enhanced data security. Companies can feel confident that the robust data security measures required to achieve the certification will safeguard sensitive customer data against a cybersecurity breach and will ensure that this data is protected according to industry best practices.
- Stronger business relationships. An InsurTech company that is SOC 2 Type II certified demonstrates to insurance carriers and wholesale agencies that the company takes data security seriously. This trust goes a long way in fostering stronger business relationships.
- Improved regulatory compliance. When it comes to data security, many industries, including insurance, are subject to strict regulatory requirements. Working with an SOC 2 Type II certified InsurTech company helps ensure that carriers and wholesale agencies meet these requirements with security controls that are matched with market best practices.
- Greater business continuity assurance. SOC 2 Type II certification requires that companies have comprehensive cybersecurity disaster recovery and business continuity plans in place. This provides reassurance to carriers and wholesale agencies that their operations will not be disrupted should a cybersecurity incident occur.
- Advanced cybersecurity risk mitigation. By ensuring that their InsurTech partners are SOC 2 Type II certified, carriers and wholesale agencies can better mitigate the risk of potential data breaches as well as the financial and reputational damage that can result from these types of incidents.
The Bottom Line
As the insurance industry continues to shift toward digital channels to better meet the increasing demands of customers, the risk of cyberattacks has heightened further. SOC 2 Type II certification is a key indicator of an InsurTech company’s commitment to data security and privacy, providing the companies it serves with extra assurance that the necessary controls and procedures are in place to protect sensitive data—and therefore reduce risk.
The certification also attests to the suitability of a company’s product offerings and the operating effectiveness of controls when it comes to security, availability and confidentiality.