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Risk Insider: Chris Mandel

Data Protection in the EU: GDPR’s New Level of Accountability and Exposure

By: | July 30, 2018 • 3 min read
Chris Mandel is SVP, strategic solutions for Sedgwick and Director of the Sedgwick Institute. He is a long-term risk management leader and a former president of RIMS. He can be reached at [email protected]

The General Data Protection Regulation (GDPR) may be one of the biggest changes implemented by the European Union with the intent to provide individuals more control over their personal information.

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GDPR, now in full effect as of May 25, 2018, gives the European Commission Office authority to impose heavy fines on all organizations that fail to follow the new guidelines.

Insurance companies and many players in the industry, through the ordinary course of business, collect large amounts of personal data and regularly process this data through the many and varied transactions completed daily. This new law applies to insurance companies around the world that do business in the EU.

All companies processing personal data of European citizens must comply. Therefore, insurance companies must ensure their operations align with GDPR requirements. There are three major issues risk managers and insurance industry professionals must be ready to comply with: receiving accurate consent, ensuring third-party compliance and avoiding completely automated decision making.

A greater weight is now being placed on receiving consent, with violations subject to the higher tier of fines. Consent is considered to be a statement or clear affirmative action giving a company permission to gather and use individuals’ personal data.

Consent must be well informed, given freely by the subject and made easily able to be withdrawn. Third-party users must be specifically named in the consent request and documentation about what, when and how an individual has consented must be maintained and available to EU enforcement authorities upon request.

Historically, ensuring the security of personal data has been the responsibility of the entity controlling the data. Under GDRP however, the burden is divided between the data processor and data controller.

For internet and mobile applications, it is no longer acceptable to obtain consent using pre-ticked check-boxes; the subject must take an affirmative action to be counted as consent.

In addition to individuals having the right to have their data erased, insurance companies must be careful not to retain data longer than necessary for the purpose of which it was collected. Nevertheless, there are exceptions to this rule, such as the allowance that data may be kept indefinitely if it is anonymized or kept for historical research or statistical purposes.

Historically, ensuring the security of personal data has been the responsibility of the entity controlling the data. Under GDRP however, the burden is divided between the data processor and data controller.

A controlling entity can be a natural or legal person, public authority or agency that determines the purpose and means of personal information being collected.

This differs from the data processor who holds and handles data for any purpose. With most insurance providers being data controllers, they must ensure all third parties who process data on their behalf are GDRP compliant.

Another major issue the insurance industry must be wary of is profiling. Profiling can be a part of automated processing of data to evaluate and predict certain characteristics, interests, behaviors or habits of individuals.

GDPR has strict requirements regarding decisions made entirely automatically without any human intervention. Examples of profiling used by insurance professionals include setting premiums, investigating fraud and planning marketing campaigns.

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However, automated individual decision making can only be carried out if necessary for the performance of a contract or based on an individual’s explicit consent.

GDPR also grants individuals the right to request human intervention and challenge decisions made about them. Consequently, insurance companies must regularly check to ensure their systems are operating as intended.

Companies affected by this new law will want to take notice of the substantial fines for non-compliance. The maximum penalty is €20 million (about $23 million in U.S. dollars) or 4 percent of a company’s worldwide annual revenue, whichever is higher.

The core of the more critical aspects to understand include the requirements for ensuring personal data held is accurate, necessary to retain and that consent has been granted.

Finally, risk managers will want to ensure that their company’s contracts with data processors and data controllers account for relevant GDPR requirements in order to effectively manage this broadened regulatory exposure to data privacy and protection.

More from Risk & Insurance

More from Risk & Insurance

Black Swans

Black Swans: Yes, It Can Happen Here

In this year's Black Swan coverage, we focus on two events: An Atlantic mega-tsunami which would wipe out the East Coast and a killer global pandemic.
By: | July 30, 2018 • 2 min read

One of the most difficult phrases to digest without becoming frustrated or judgmental is the oft-repeated, “I never thought that could happen here.”

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Most painfully, we hear it time and time again in the aftermath of the mass school shootings that terrorize this country. Shocked parents and neighbors, viewing the carnage, voice that they can’t believe this happened in their neighborhood.

Not to be mean, but why couldn’t it happen in your neighborhood?

So it is with Black Swans, a phrase describing unforeseen events, made famous by the former trader and acerbic critic of academia Nassim Nicholas Taleb.

We at Risk & Insurance® define these events in insurance terms by saying that they are highly infrequent, yet could cause massive damages. This year, for our annual Black Swan issue, we present two very different scenarios, both of which would leave mass devastation in their wake.

A Mega-Tsunami Is Coming; Can the East Coast Even Prepare?, written by staff writer Autumn Heisler, profiles an Atlantic mega-tsunami, which would wipe out lives and commerce along the East Coast.

On the topic of whether the volcanic island of La Palma, the most northwestern of the Canary Islands, could erupt, split and trigger an Atlantic mega-tsunami, scientists are divided.

Researchers Steven Ward, a geophysicist at UC Santa Cruz, and Simon Day of University College London, say such a thing could happen. Other scientists say Day and Ward are dead wrong; it’s an impossibility.

One of the counter-arguments is backed up by the statement that there has never been an Atlantic mega-tsunami. It’s never happened before and thus, could never happen here. See exhibit “A” above, re: mass school shootings.

Viral Fear: How a Global Pandemic Kills an Economy, written by associate editor Katie Dwyer, depicts a killer global pandemic the likes of which hasn’t been seen in a century.

Tens of millions of people died during the Spanish Flu outbreak of 1918.

Why it could happen again includes the fact that it’s happened before. The science on influenzas, which are constantly mutating, also supports just how dangerous a threat they pose to millions of people beyond the reach of antibiotics.

Should a mutating avian flu, for example, spread widely, we could see a 10 percent drop in GDP, mostly from non-physical business interruption.

As always here, the purpose is to do exactly what insurance modelers and underwriters do; no matter how massive the event, we create scenarios, quantify possible losses and discuss risk mitigation strategies. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]