The General Data Protection Regulation (GDPR or Regulation) has been approved by European Union (EU) members as well as the Council of Europe and, at the time of writing, the draft Regulation is before the European Parliament for consideration and approval. Work has already begun to be ready for 2018 implementation. The Regulation strives for common data protections in all EU countries. With this two year phase-in period and with much to be done, those in the insurance industry that collect personal data (or PII) in or from individuals in the EU should begin preparing now for the increased data compliance requirements, which will become mandatory as soon as the GDPR takes effect.

Key Features of the GDPR

Post the ECJ Safe Harbor case (Maximillian Schrems v Data Protection Commissioner, Case C-362/14, 6 October 2015), the GDPR will maintain the general prohibition of data transfers to non-EU countries that are not officially recognised as having an ‘adequate’ level of protection by the EU, but current systems are to be kept intact until repealed. At this stage, the validity of using model contract clauses and binding corporate rules (or BCR’s) to transfer personal data outside the European Economic Area (EEA) remain valid (see Arts. 40-42 of the GDPR). However, the EU Article 29 Working Party (a policy body made up of the national heads of data protection authorities in EU countries) has also indicated in very recent announcements that they have concerns regarding the appropriateness of model clauses and binding corporate rules for transfers to the U.S., and will be reassessing those mechanisms in light of a new proposed Safe Harbor approach (the Privacy Shield framework) once it is released. Thus, while they made clear that businesses may rely on model clauses and binding corporate rules in the interim, that issue will be subject to review, the results of which are expected shortly. Indeed, it is fair to say that the Privacy Shield itself, as well as the model clauses and binding corporate rules, are susceptible to a legal challenge to their ability to afford an adequate level of protection for the transfer of personal data outside of the EEA (in much the same way that Maximillian Schrems, a privacy activist, challenged the adequacy of the first Safe Harbor framework).

Scope

U.S. and other non-EU insurers will be subject to the Regulation if they underwrite risks for or issue policies to individuals and companies located within the EU, or if they monitor individuals’ behaviour which takes place within the EU. For example, an insurer who collects data of EU insureds using cookies will likely be subject to the Regulation. This is a key change from the current regulatory scheme and will likely mean that many more international companies and insurers will be subject to the EU data protection regime.

“One Stop Shop”

The GDPR aims to create a so-called “one stop shop” for regulatory approvals and the regulation of multi-state processing. Where a company’s processing activity affects data subjects in more than one Member State in the EU, the country where the bulk of the data processing takes place will act as a “lead supervisory authority” and will be primarily responsible for regulating that particular activity across the EU.

Data Impact Assessments

Companies will, in certain circumstances, need to carry out systemic and extensive data impact assessments, especially if the data processing is regarded as “high risk”. Data processing is generally regarded as “high risk” if it involves sensitive personal data or its uses are more intrusive, both features which are often (although not always) the case when it comes to personal data held by insurers Consultation with the authorities may be required in such “high risk” circumstances. Whether these reviews will be akin to data audits or cyber or data risk assessments in the U.S. is not yet clear. Data protection officers, as described below, will be responsible for this task.

Data Protection Officers

Entities with certain types of data or data activities will have to appoint a data protection officer (DPO), reporting to senior management. DPOs will be required for businesses with core activities that, by virtue of their nature, scope or purposes, require regular and systematic monitoring of data subjects on a large scale; or processing on a large scale of special categories of data (essentially, personal data and sensitive personal data, or data relating to criminal convictions and offences).

This may refer to processing which (in the words of Recital 71 to the GDPR) aims at “a considerable amount of personal data at regional, national or supranational level and which could affect a large number of data subjects and which are likely to result in a high risk, for example, on account of their sensitivity, where in accordance with the achieved state of technological knowledge a new technology is used on a large scale as well as to other processing operations which result in a high risk for the rights and freedoms of data subjects, in particular where those operations render it more difficult for data subjects to exercise their rights.”

Data Breach Reporting

The GDPR introduces a general data breach reporting requirement. Data controllers must notify personal data breaches to the competent supervisory authority, where feasible, not later than 72 hours after becoming aware of the breach, unless the data controller is able to demonstrate that the breach is unlikely to result in a risk to the rights and freedoms of the data subjects concerned. Notifications must also be made to data subjects “without undue delay” if the breach is likely to result in a high risk to their rights and freedoms.

Under the new regime, businesses could be fined up to €20 million or 4% of annual global turnover in the most recent financial year, whichever is greater. For infringements not subject to administrative fines, Member States are given the authority to set their own penalties, including criminal penalties. Consumer bodies will now also be able to bring their own claims, which may open the door for class actions in Europe. Under the current regime, Member States determine the fines, and/or criminal penalties, at local level. The UK Information Commissioner’s Office currently only has the power to impose fines of up to £500,000 for serious breaches, a level which it has never reached when issuing a fine. The considerably higher penalties under the GDPR will certainly act to raise awareness of companies’ data protection obligations and hopefully encourage businesses to comply.

The GDPR has, as a fundamental underlying ethos, the aim of harmonisation in its application and enforcement across the EU. Joint operations between supervisory authorities from different Member States will be encouraged “where appropriate” and a European Data Protection Board will be established to seek to ensure the consistent application of the GDPR across the EU (this is likely, at least in form, to be similar to the current Article 29 Working Party). The Board will include representatives from each Member State, and its tasks will include issuing guidelines, recommendations, and opining on supervisory authorities’ application of the GDPR. It will advise the Commission much as the Article 29 Working Party does under the current regime, but the new Board will have a separate legal personality and will have the power to adopt binding decisions in disputes between Member State supervisory authorities.

Potential Challenges for Insurers

Using individual data

On the plus side, registration as a data controller will no longer be necessary. However, data controllers and processors alike will need to maintain internal records of their data processing activities. Data controllers may also be required to carry out a “data protection impact assessment” before processing personal data. For insurers it is essential that they understand the GDPR so as to know how to lawfully access, process, store and share data to continue to offer products. Data enables insurers to price products accurately and provide cover that best meets their customers’ needs, which has been the basis of insurance for hundreds of years. The use of data also enables insurers to prevent and detect fraud, thereby minimising costs for honest customers.

Right to be forgotten

A flagship proposal of the GDPR (which has, in fact, simply reiterated the terms of the decision of the CJEU in the Google v AEPD referral from the Spanish courts), is the right to be forgotten. This right, however, needs to be accommodated to the larger legal environment. For example, an insurer, or any company for that matter, may not be able to delete all data it holds on an individual because it has to comply with other regulations (for instance, for anti-money laundering purposes) or in order to pay out an insurance claim at a later stage.

Data portability

The GDPR should not force insurers to disclose commercially sensitive information to competitors. The proposed legislation introduces a right to data portability, which allows data subjects to require that personal data held on them by one company be transferred to another. If the provisions remain in the final text (as we anticipate they are likely to), we hope that the language of the Regulation or, as a minimum, its enforcement (in time) is such that

Underwriting

It is important that the GDPR does not impede insurers’ ability to underwrite risk. The provisions on ‘profiling’ could impact the provision of goods and services and so, therefore, these need to be proportionate to ensure insurers are still able to use customers’ data (i.e. with their consent, or for the purposes of entering into or the performance of the contract) to provide customers with the products they need whilst protecting their business and the quality of the underwriting.