The NAIC Insurance Data Security Model Law: Impacts on Credit Unions and the Insurance Industry

In the modern era, industries that handle sensitive financial and personal data are prime targets for cyberattacks. Among these, the insurance industry and financial institutions such as credit unions face significant risks due to the vast amount of confidential information they process daily. To address these challenges, the National Association of Insurance Commissioners (NAIC) introduced the Insurance Data Security Model Law (Model #668). This law not only impacts insurers and brokers but also extends to entities closely tied to the insurance industry, such as credit unions offering insurance-related services.

This article examines the framework of the law, its adoption across states, its specific impact on credit unions, and the measures required for compliance.

What is the NAIC Insurance Data Security Model Law?

The NAIC Insurance Data Security Model Law, issued in 2017, establishes a comprehensive regulatory framework for protecting consumer data. While its primary focus is on insurance licensees, its scope extends to all entities licensed under state insurance laws, which can include credit unions that partner with insurance providers or sell insurance products.

The model law aims to:

1. Protect nonpublic information (NPI) from cyber threats.
2. Require entities to implement robust cybersecurity programs.
3. Ensure efficient response mechanisms in the event of a data breach.

Although the model law itself is not enforceable, states can adopt it to create enforceable regulations tailored to their specific needs.

States Where the Model Law is Applicable

As of December 2024, 23 states have adopted legislation based on the NAIC Insurance Data Security Model Law. These states include:

• Alabama
• Connecticut
• Delaware
• Hawaii
• Illinois
• Indiana
• Iowa
• Kentucky
• Louisiana
• Maine
• Maryland
• Michigan
• Minnesota
• Mississippi
• New Hampshire
• North Dakota
• Ohio
• Oklahoma
• South Carolina
• Tennessee
• Vermont
• Virginia
• Wisconsin

Additionally, New York has implemented similar regulations under its 23 NYCRR 500 Cybersecurity Regulation, which predated the NAIC model law.

These laws apply not only to insurers but also to credit unions that act as intermediaries for insurance products or maintain relationships with third-party insurance providers.

How the Law Affects Credit Unions

Credit unions are unique financial institutions that serve their members with a broad range of financial products and services, including insurance. Many credit unions either partner with insurance providers or directly offer insurance-related services, which brings them under the scope of the NAIC model law when adopted in their state.

Key Impacts on Credit Unions:

1. Applicability to Insurance-Related Activities:
2. Responsibility for Third-Party Vendors:
3. Consumer Trust:
4. Regulatory Burden:

Key Measures Required Under the Law

Credit unions affected by the model law must implement several critical measures to comply:

1. Risk Assessments

• Credit unions must conduct regular assessments to identify cybersecurity risks specific to their operations and partnerships.
• These assessments should cover areas such as member data storage, internal controls, and third-party access.

2. Information Security Program

• A written information security program tailored to the credit union’s size, complexity, and activities is mandatory.
• This program should include:Policies for securing member data and insurance-related records.Procedures for encrypting sensitive information.Mechanisms to detect and mitigate unauthorized access.

3. Incident Response Plan

• Credit unions must maintain a comprehensive incident response plan to manage and mitigate the impact of cybersecurity incidents.
• The plan should detail:How breaches will be identified and reported internally.Notification protocols for members and regulators.Steps to restore affected systems and services.

4. Vendor Management

• Credit unions must ensure that third-party vendors comply with cybersecurity standards.
• Contracts should include provisions for regular audits and breach notification requirements.

5. Employee Training

• Employees at all levels must be trained on cybersecurity best practices and the importance of safeguarding member information.
• Training programs should be updated regularly to reflect emerging threats and compliance requirements.

6. Breach Notification Requirements

• In the event of a breach, credit unions must notify the relevant state insurance commissioner within 72 hours of determining that a breach occurred.
• Members affected by the breach must also be informed promptly, adhering to state-specific notification laws.

7. Board and Senior Management Oversight

• Credit union boards must oversee the implementation of the information security program.
• Senior management must provide annual reports on cybersecurity risks, the effectiveness of security measures, and incidents that occurred.

Exemptions and Flexibility for Credit Unions

To accommodate smaller organizations, the law provides certain exemptions:

• Credit unions with fewer than 10 employees may be exempt from some provisions.
• Entities already in compliance with federal data security laws, such as the Gramm-Leach-Bliley Act (GLBA), may not need to duplicate efforts for overlapping requirements.

This flexibility helps ensure that credit unions can balance compliance with operational efficiency.

Challenges and Benefits for Credit Unions

Challenges

• Resource Constraints: Smaller credit unions may struggle to allocate the resources needed to comply with stringent data security requirements.
• Navigating State Variations: Credit unions operating in multiple states must adapt to differing interpretations and implementations of the model law.
• Vendor Oversight: Ensuring third-party compliance adds administrative complexity.

Benefits

• Stronger Member Relationships: By adopting robust security measures, credit unions can enhance member trust and loyalty.
• Reduced Risk of Data Breaches: Proactively addressing vulnerabilities minimizes the likelihood of costly breaches.
• Regulatory Clarity: The model law provides a clear framework, enabling credit unions to align their practices with industry standards.

Conclusion

The NAIC Insurance Data Security Model Law is a critical step in addressing cybersecurity threats across the insurance and financial sectors. For credit unions, the law presents both challenges and opportunities. By adopting the required measures, credit unions can not only ensure compliance but also reinforce their commitment to protecting member data.

As more states enact the model law, credit unions must remain proactive in understanding their obligations and implementing comprehensive cybersecurity programs. While the journey to compliance may be demanding, the benefits of safeguarding member trust and data integrity make it a necessary investment.