Insurer Offers GDPR-Specific Coverage for SMBs

Cyber insurance provider Coalition has announced new policies explicitly designed to cover fines and costs stemming from violations of the EU's General Data Protection Regulation (GDPR).

The policies are targeted primarily at small and midsize companies that handle data on or offer goods and services to EU residents. Policy limits range from $25,000 to $10 million, covering defense costs as well as fines and penalties resulting from GDPR violations, says Joshua Motta, CEO and founder of Coalition.

The costs for Coalition's policies range from $50 per year to over $100,000 per year for companies that want the full $10 million coverage. The average cost for a Coalition policy with a $1 million to $2 million limit will be around $4,000 a year. "This includes fines and penalties resulting not only from data and privacy breaches, as are commonly covered in the cyber insurance market, but also, importantly, a company's failure to comply with their privacy policy," Motta says.

Unlike other data privacy laws, GDPR imposes penalties even when there is no actual data breach. In fact, since the regulation went into effect last May, EU regulators have taken action against numerous organizations for either failing to comply with their own policies or for not fully complying with GDPR requirements for privacy disclosures, data collection, processing, and use. One example is French data protection authority CNIL's 50 million euros fine on Google last month for the company's "lack of transparency, inadequate information, and lack of valid consent" when collecting data for ads personalization.

Historically, data breach insurance policies have been sufficient because fines and penalties under existing privacy laws have only been triggered in the event of a breach, Motta notes. "[With GDPR], companies can now be fined even if they've never lost a single piece of customer data, introducing a significant gap in coverage across most cyber insurance policies," Motta says. Coalition's new policy is aimed at addressing this gap, he says.

Swirling Uncertainity
Questions about the availability of insurance for GDPR violations and the insurability of fines and penalties under the statute remain mostly unanswered nine months after the law went into effect. In a report last November, the National Law Review doubted whether existing cyber insurance policies cover fines and penalties related to GDPR violations. The article pointed to several studies that called into question whether any company would be able to insure against the huge fines that can be imposed under GDPR. The law allows for fines of up to 4% of a company's annual global revenues, or up to 20 million euros if that amount is higher.

One of the studies quoted in the National Law Review article was from insurance giant Aon and law firm DLA Piper. The study, conducted just before GDPR went into effect, found that, with the exception of Norway and Finland, GDPR fines are not insurable in almost any other EU nation. Even so, insurance needs to be a component of an organization's GDPR risk management strategy, the report noted.

Robert Stines, a partner at law firm Freeborn & Peters, says the effectiveness of cyber insurance as a risk-transference method for GDPR remains untested and will depend on the language in the policy. "If there is broad language that will cover all administrative fines and all claims under the GDPR, then cyber insurance might be an effective risk-transference measure," Stines says.

But often insurance policies have exclusions and limiting language that leave them open to interpretation, he cautions. When considering a policy, organizations need to be wary of sublimits, exclusions, and how specific terms such as "claims," "damages," and "fines" are defined.       

Many US companies do not have the technical capabilities to address liability risks caused by GDPR requirements, such as data pseudonymization or anonymization, providing users with portable copies of their data, and deleting data upon a user's request, Stines says. But GDPR is still so new that it is not clear how the mandate will be enforced, especially on US companies that do not operate in the EU but handle data on EU residents, Stines says.

The expectation that GDPR will create new exposure and risk for companies is driving demand for GDPR-related insurance, he says. "Insurance companies are trying to supply products to meet the demand," Stines adds. "The difficulty that insurance companies have is underwriting this risk because GDPR is so new and untested."

Before considering a policy, organizations need to have a clear understanding of how they collect, store, use, and destroy data related to EU residents. "If the GDPR applies, insurance is an excellent measure to augment cyber resilience, but it cannot be the primary source," Stines says.

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