Understanding SOC 2 Type II Compliance in the Insurance Industry: Part I

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 fact is, the insurance sector has the most frequently reported data breach losses in the industry and the largest total amount of associated costs. 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 safeguard 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.

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, which is the focus of this article, 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.

The Bottom Line

SOC 2 Type II compliance certification is considered the gold standard in cybersecurity mitigation. An insurtech company’s willingness to go the extra mile to become certified speaks volumes, demonstrating a commitment to providing the highest level of security and data protection.

When implementing new insurtech capabilities, such as workflow automation that captures and uses data for property and casualty insurance ratings and quotes, underwriting, processing, etc., SOC 2 Type II compliance certification should be the very minimum requirement for insurers and wholesalers who are considering a SaaS provider.

In part two of this article, we’ll explain the advantages insurance carriers and wholesalers gain by working with an insurtech company that has made the extra effort to secure SOC 2 Type II compliance certification. We’ll also look at the key benefits provided in terms of enhanced security, increased trust, and potential business growth opportunities.

About Surefyre
Surefyre is a highly configurable insurance automation platform and agency portal focused on digital distribution and automated workflows. Our easy-to-implement process can integrate with almost anything, from outdated legacy systems to top-of-the-line programs. Our codeless integration platform makes your life easier by automating the submission, rating, quoting, and binding process for all P&C insurance products.

To learn more, contact Shawn Gonzales, Adviser & Account Executive, at sgonzales@surefyre.co or 415-480-9283. 

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