In Short
- UK data protection law requires businesses to keep personal data secure and demonstrate accountability.
- Cyber incidents can lead to investigations, fines, compensation claims, and high remediation costs.
- Insurance may help manage some financial risks, but it cannot replace strong data protection practices.
Tips for Businesses
Start by understanding what personal data your business collects and where it is stored. Confirm whether you act as a controller or a processor for each activity. Review your policies, contracts, and security measures regularly. Train staff on cyber risks and test your procedures so weaknesses are identified before a breach occurs.
Summary
This article explains the data protection and cyber risk considerations for small businesses operating in the United Kingdom. LegalVision, a commercial law firm specialising in advising clients on data protection and cybersecurity matters, outlines how insurance interacts with UK GDPR obligations and where its limits sit.
Table of Contents
Privacy and cyber risks are a significant concern for businesses of all sizes across a range of industries. If small businesses process personal data and sensitive information, they can quickly face threats such as:
- data breaches;
- system failures;
- malicious hacking; and
- cyberattacks.
If your business handles personal data, certain cyber incidents can lead to serious consequences and action from regulators under UK data protection law. Breaching data protection laws can result in:
- investigations;
- fines;
- compensation claims; and
- high costs to remedy issues.
For small businesses, this can be especially damaging. As such, it is important to understand the steps you can take to reduce the risk of breaching data protection laws. Insurance may be a useful tool to help your business manage certain liabilities, but this comes with important caveats and exceptions.
This article provides an introductory overview of insurance and data protection risks. Seeking advice from an insurance broker can provide your business with guidance on specific suitable policies that are appropriate for your specific risk profile.
The UK Data Protection Law Framework
The UK’s data protection law framework comprises the UK General Data Protection Regulation (UK GDPR) and the Data Protection Act 2018. These laws govern how organisations can use and protect personal data.
Key rules include keeping personal data secure and putting appropriate safeguards in place to reduce the risk of breaches. The legal framework also places a strong emphasis on accountability, meaning businesses must demonstrate compliance with the data protection principles and be able to evidence this.
The Information Commissioner enforces these rules and has strong powers to investigate breaches and issue significant fines. That is why it is important to understand your data protection obligations and treat them as a priority.
How Insurance Could Help to Manage Risks
As a small business, it is sensible to consider insurance as a tool to help mitigate risks across your activities. Cyber insurance can be a valuable policy and is designed to address risks that are linked to the use of technology and data, including the loss of information and disruption to information technology systems.
Cyber insurance can help to manage risk by covering certain financial losses, such as:
- business interruption caused by IT outages;
- cyber extortion costs; and
- expenses linked to restoring systems and data.
In the context of UK GDPR breaches, cyber insurance can cover incident response and crisis management costs. These may include:
- legal advice;
- IT forensics;
- investigation and remediation work;
- public relations support; and
- the costs of notifying regulators and affected individuals.
Can Insurance Cover Data Protection Fines?
This question is complex, and your business should seek advice for a comprehensive opinion. Put very simply, under English law, losses arising from a party’s own illegal acts are generally not recoverable due to public policy.
This principle can apply to breaches of legal rules that exist to protect the public interest. As a result, insurance cover for UK GDPR fines is uncertain and often limited in practice. If a regulator fines a business because its actions caused or contributed to a breach, insurance is unlikely to cover that fine. For this reason, businesses should take a cautious approach and put steps in place early to meet their data protection duties. How the courts will deal with these issues over time is still developing.
Working With a Broker and Insurance Considerations
Working with an experienced insurance broker can help small businesses to fully understand cyber insurance options and select cover that reflects their specific risk profile in a proportionate manner. Cyber policies can differ significantly between insurers, and the wording set out within the policies can significantly affect what is covered. An insurance broker can assist with reviewing policy terms and offering guidance on what liabilities are and are not covered.
Insurance can also be an important commercial issue during contract negotiations. For example, where a business acts as a data processor, a prospective controller client may ask whether cyber insurance is in place before entering into a data processing agreement. Controllers will often want reassurance that processors can manage the financial and operational risks associated with data protection matters. Having appropriate insurance can:
- help support negotiations;
- satisfy due diligence expectations; and
- demonstrate a proactive approach to data protection and risk management.
Understanding the Limits of Insurance
Cyber insurance will likely include limits and cannot replace the benefit and protection of strong compliance.
Relying on cyber insurance alone is risky. If a business fails to meet policy requirements, insurers may deny claims. For this reason, small businesses should prioritise a strong data protection compliance programme to help to reduce risk.
Practical Tips to Reduce UK GDPR Risk
Compliance with data protection law rules is not one-size-fits-all and looks different for different businesses. However, there are steps your business can take to mitigate risk.
Map How Personal Data Moves Through Your Business
Map out how your business handles personal data by identifying:
- what data you collect;
- where it comes from;
- how you use it;
- where you store it; and
- who can access it.
Confirm Whether You Are a Controller or a Processor
Identify whether your business acts as a data controller or a data processor for each processing activity. Controllers have the most onerous compliance obligations, but processors also have direct and important legal duties.
Review and Strengthen Your Internal Processes
Review your existing systems, policies and procedures against data protection rules and regularly conduct audits. This task includes:
- allocating responsibility for data protection;
- updating or drafting new privacy documentation as necessary;
- implementing and improving security measures; and
- ensuring staff understand their obligations.
Identify Gaps and Set Clear Priorities
Carry out a gap analysis to compare your practices with the requirements of the UK GDPR and the Data Protection Act 2018, and use this accordingly to prioritise issues and develop a clear action plan.
Build Strong Cybersecurity Awareness and Safeguards
Invest in robust internal cybersecurity training so employees can understand cyber threats and vulnerabilities, and know how to mitigate risks. This can be supported by a clear cybersecurity policy and sensible security measures to protect personal information.
Working with a data protection solicitor can help your business to understand its obligations and put in place processes and documentation to help reduce risk. A data protection solicitor can also guide you on the highest areas of risk within your business and help you prioritise remedial steps for risk prevention.
This factsheet sets out how your business can become GDPR compliant.
Key Takeaways
UK data protection law imposes strong obligations on businesses that process personal data, and the penalties for breaching these rules can be considerably risky for small businesses.
UK GDPR breaches can lead to:
- regulatory investigations;
- financial penalties;
- compensation claims; and
- reputational harm.
Cyber insurance could help to partly manage the financial consequences of data protection incidents, such as data breach incident response and investigation costs. However, cover for fines is uncertain. Small businesses should therefore seek to prioritise compliance and cybersecurity and use insurance as additional support tools alongside a robust compliance programme.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Cyber insurance may step in to help you cover some of the costs that arise after a data breach or cyber incident, e.g. legal advice, IT investigation and recovery. While cyber insurance cannot prevent incidents, it can help to reduce the financial impact you suffer.
UK GDPR compliance can help to reduce the risk of data breaches and regulatory action. Strong compliance may help lower the chance of fines, compensation claims and reputational damage and can also help support smoother incident responses.
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