South Carolina recently became the first state to adopt the National Association of Insurance Commissioners’ (NAIC) Insurance Data Security Model Law. The NAIC is a standard-setting and regulatory support organization consisting of the top insurance regulators from the 50 states, District of Columbia, and five U.S. territories. The NAIC formally adopted the model law in October 2017. The model law is similar but not identical to the New York Department of Financial Services’ cybersecurity rules applicable to banks, insurance companies and other financial services companies, 23 NYCRR 500, that went into effect on March 1, 2017. A drafter’s note to the model law indicates that someone in compliance with the New York cyber rules is in compliance with the model law. South Carolina adopted the model law nearly verbatim as the South Carolina Insurance Data Security Act, which will become effective Jan. 1, 2019. The Data Security Act makes no reference to the New York cyber rules and it remains to be seen how South Carolina will treat companies that are already subject to the New York cyber rules. The most likely way in which this will be addressed would be through regulations adopted pursuant to the Data Security Act.

Two of the biggest questions when the model law was adopted were how widely and how uniformly the model law would be implemented by the states. That remains to be seen as currently only one other state, Rhode Island, is considering whether or not to adopt the model law. However, a number of other states are considering legislation involving insurance companies and some aspect of data privacy including Georgia, Illinois, Kentucky, Maryland and Virginia among others, which further increases the prospect of a patchwork of competing and possibly conflicting cybersecurity requirements.