The purpose of this act is to “ensure that licensees of the South Carolina Department of Insurance have a strong and aggressive cybersecurity program to protect the personal data of consumers in South Carolina and elsewhere.”²
To Whom Does the Act Apply?One of the areas of confusion is which companies are affected by this act. The Act applies to all licensees “any person licensed, authorized to operate, or registered, or required to be licensed, authorized, or registered pursuant to the insurance laws of the State.”
According to an interview I conducted with an employee of the South Carolina Department of Insurance, even if you are not domiciled (located) in South Carolina, but your organization is licensed to sell insurance in South Carolina, then The Act applies to you.
Key Definitions“Cybersecurity event” means an event resulting in unauthorized access to or the disruption or misuse of an information system or information stored on an information system. The term “cybersecurity event” does not include the unauthorized acquisition of encrypted nonpublic information if the encryption, process or key is not also acquired, released or used without authorization. The term “cybersecurity event” also does not include an event with regard to which the licensee has determined that the nonpublic information accessed by an unauthorized person has not been used or released and has been returned or destroyed.
“Director” means the Director of the Department of Insurance or his designee.
“Information security program” means the administrative, technical, and physical safeguards that a licensee uses to access, collect, distribute, process, protect, store, use transmit, dispose of, or otherwise handle nonpublic information.
“Licensee” means a person licensed, authorized to operate, or registered, or required to be licensed, authorized, or registered pursuant to the insurance laws of this State but does not include a purchasing group or a risk retention group chartered and licensed in a state other than this State or a licensee that is acting as an assuming insurer that is domiciled in another state or jurisdiction.
(full list: https://www.scstatehouse.gov/code/t38c099.php)
ExceptionsThe only entities excluded are
- Out of state purchasing groups
- Out of state risk retention groups
- Out of state licensees who are only acting as an assuming reinsurer.
- Licensees or independent contractors with fewer than 10 (9 or less) employees, agents or representatives
- Licensees that are able to certify compliance with HIPAA via a written certification (audit report)
What Does the Act Do?The Act requires licensees to:
- Conduct a Risk Assessment (taking into account compliance requirements from the Act)
- Develop, implement and maintain a comprehensive written information security program based on the licensee’s risk assessment. The plan must address Physical, Administrative and Technical controls.
- Establish oversight from the licensees’ Board of Directors over the information security that meets or exceeds the minimum requirements set forth in The Act.
- Establish an Incident Response plan that meets or exceeds the minimum requirements set forth in The Act.
- Submit an annual statement the Director certifying compliance within The Act
- Establishes requirements and obligations for a licensee in the event of a cybersecurity event
- Grants the Director authority to examine and investigate a licensee’s compliance within The Act
- Allows the Director to securely use, share or receive confidential and privileged information in control of the Department of Insurance for the purpose of regulatory action
- Provides penalties for violations of the act
- Authorizes the Director to promulgate regulations necessary for the act
When does it start?There are 4 dates you need to be aware of:
January 1, 2019Beginning on this date, licensees must comply with the reporting requirement regarding a cybersecurity event, among other requirements.
DOI SC Official Reporting Form
July 1, 2019The last to implement Section 38-99-20 ³ (the Information Security Program) of this Act.
(A) Commensurate with the size and complexity of the licensee, the nature and scope of the licensee’s activities, including its use of third-party service providers, and the sensitivity of the nonpublic information used by the licensee or in the licensee’s possession, custody, or control, each licensee shall develop, implement, and maintain a comprehensive written information security program based on the licensee’s risk assessment and that contains administrative, technical, and physical safeguards for the protection of nonpublic information and the licensee’s information system.
(B) A licensee’s information security program must be designed to:
(1) Protect the security and confidentiality of nonpublic information and the
security of the information system;
(2) Protect against threats or hazards to the security or integrity of nonpublic
information and the information system;
(3) Protect against unauthorized access to or use of nonpublic information,
and minimize the likelihood of harm to a consumer; and
(4) Define and periodically reevaluate a schedule for retention of nonpublic information
and a mechanism for its destruction when no longer needed.
(C) The licensee shall:
(1) Designate one or more employees, an affiliate, or an outside vendor designated
to act on behalf of the licensee as responsible for the information security program;
(2) Identify reasonably foreseeable internal or external threats that could result in the
unauthorized access to or transmission, disclosure, misuse, alteration, or destruction of nonpublic
information including the security of information systems and nonpublic information that are
accessible to or held by third-party service providers;
(3) Assess the likelihood and potential damage of these threats, considering the
sensitivity of the nonpublic information;
(4) Assess the sufficiency of policies, procedures, information systems, and other safeguards
in place to manage these threats, taking into consideration threats in each relevant area
of the licensee’s operations, including:
(a) Employee training and management;
(b) Information systems, including network and software design, and information classification,
governance, processing, storage, transmission, and disposal; and
(c) Detecting, preventing, and responding to attacks, intrusions, or other systems failures; and
(5) Implement information safeguards to manage the threats identified in its ongoing assessment,
and at least annually assess the effectiveness of the safeguards’ key controls, systems, and procedures.
(D) Based on its risk assessment, the licensee shall:
(1) Design its information security program to mitigate the identified risks, commensurate with the size
and complexity of the licensee’s activities, including its use of third-party service providers,
and the sensitivity of the nonpublic information used by the licensee or in the licensee’s possession,
custody, or control;
(2) Determine the appropriateness of and implement the following security measures:
(a) Placing access controls on information systems, including controls to authenticate
and permit access only to authorized individuals to protect against the unauthorized
acquisition of nonpublic information;
(b) Identifying and managing the data, personnel, devices, systems, and facilities that enable
the organization to achieve business purposes in accordance with their relative importance
to business objectives and the organization’s risk strategy;
(c) Restricting access at physical locations containing nonpublic information to authorized individuals;
(d) Protecting by encryption or other appropriate means, all nonpublic information while being
transmitted over an external network and all nonpublic information stored on a laptop computer
or other portable computing or storage device or media;
(e) Adopting secure development practices for in-house developed applications used by the licensee
and procedures for evaluating, assessing, and testing the security of externally developed
applications used by the licensee;
(f) Modifying the information system in accordance with the licensee’s information security program;
(g) Utilizing effective controls, which may include multifactor authentication procedures for an
individual accessing nonpublic information;
(h) Regularly testing and monitoring systems and procedures to detect actual and attempted attacks on,
or intrusions into, information systems;
(i) Including audit trails within the information security program designed to detect and respond to
cybersecurity events and designed to reconstruct material financial transactions sufficient to
support normal operations and obligations of the licensee;
(j) Implementing measures to protect against destruction, loss, or damage of nonpublic information
due to environmental hazards such as fire and water damage or other catastrophes
or technological failures; and
(k) Developing, implementing, and maintaining procedures for the secure disposal of
nonpublic information in any format;
(3) Include cybersecurity risks in the licensee’s enterprise risk management process;
(4) Stay informed regarding emerging threats or vulnerabilities and use reasonable security measures
when sharing information relative to the character of the sharing and the type of information shared;
(5) Provide its personnel with cybersecurity awareness training that is updated as necessary to reflect risks
identified by the licensee in the risk assessment.
(E) (1) If the licensee has a board of directors, the board or an appropriate committee of the board shall,
at a minimum:
(a) Require the licensee’s executive management or its delegates to develop, implement, and maintain
the licensee’s information security program; and
(b) Require the licensee’s executive management or its delegates to report in writing at least annually:
(i) The overall status of the information security program and the licensee’s compliance
with this chapter; and
(ii) Material matters related to the information security program addressing issues such as
risk assessment, risk management and control decisions, third-party service provider arrangements,
testing results, cybersecurity events or violations and management’s responses,
and recommendations for changes in the information security program.
(2) If the executive management of a licensee delegates any of its responsibilities under this chapter,
it shall oversee the development, implementation, and maintenance of the licensee’s information security
program prepared by the delegates and receive a report from the delegates which must comply with the
requirements of the report to the board of directors.
February 15, 2020 – The last day to submit the first annual written statement to the Director certifying compliance.
July 1, 2020 – The last day to implement Section 38-99-20(F) of this Act.
(F) (1) Exercise due diligence in selecting its third-party service provider; and
(2) Require a third-party service provider to implement appropriate administrative, technical,
and physical measures to protect and secure the information systems and nonpublic information
that are accessible to, or held by, the third-party service provider.
(G) The licensee shall monitor, evaluate and adjust the information security program consistent with any relevant changes in technology, the sensitivity of its nonpublic information, internal or external threats to information, and the licensee’s own changing business arrangements including, but not limited to, mergers and acquisitions, alliances and joint ventures, outsourcing arrangements, and changes to information systems.
(H) (1) As part of its information security program, a licensee must establish a written incident response plan designed to promptly respond to, and recover from, a cybersecurity event that compromises the confidentiality, integrity, or availability of nonpublic information in its possession, the licensee’s information systems, or the continuing functionality of any aspect of the licensee’s business or operations.
(2) An incident response plan required in item (1) must address:
(a) The internal process for responding to a cybersecurity event;
(b) The goals of the incident response plan;
(c) The definition of clear roles, responsibilities and levels of decision-making authority;
(d) External and internal communications and information sharing;
(e) Identification of requirements for the remediation of any identified weaknesses in
information systems and associated controls;
(f) Documentation and reporting regarding cybersecurity events and related
incident response activities; and
(g) The evaluation and revision as necessary of the incident response plan
following a cybersecurity event.Annually, each insurer domiciled in this State shall submit to the director, a written statement by February 15, certifying that the insurer is in compliance with the requirements set forth in this section. Each insurer shall maintain for examination by the department all records, schedules, and data supporting this certificate for a period of five years. To the extent an insurer has identified areas, systems, or processes that require material improvement, updating or redesign, the insurer shall document the identification and the remedial efforts planned and underway to address such areas, systems, or processes. Such documentation must be available for inspection by the director.
How will compliance be enforced?During my conversation with the South Carolina Department of Insurance, who was gracious enough to speak with me at length about some of the questions we see most often, they discussed how they will be enforcing compliance.
- Through examining submissions during the filing process. This will only affect organizations domiciled in South Carolina
- Exams of domestic licenses. These exams are conducted every 5 years, and starting July 1, 2019, these will include compliance questions
- Targeted exams
- Reports of non-compliance, which will initiate an investigation
We can helpI want to thank the South Carolina Department of Insurance for their willingness to answer my questions. If you have questions, they are a great resource. If you need help with any of the above or would like to speak with one of our security experts about your organization, please contact us below.