Don’t Be Tricked By AI Vendors That Treat Security Certifications Like an Afterthought

Halloween is full of spooky surprises, but when it comes to choosing an AI vendor, insurers can’t afford to go whistling past the graveyard. Behind their glossy sales pitches, some vendors might be hiding gaps in security, accuracy, and regulatory compliance that could have frightening consequences for your data, customers, and reputation.

Insurance is built on trust. That’s why choosing an AI partner isn’t just about flashy demos, it’s about verifying that a vendor has the necessary certifications to prove their commitment to protecting your customers’ sensitive information.  

Below are six critical certifications your insurance AI vendor should have. Think of these certifications as Halloween treats: without them, you may be left holding an empty bag. 

1. SOC 2 Type II Auditing - The Ghostbuster of Data Controls

SOC 2 Type II is like hiring a ghostbuster for your systems. This audit verifies that a vendor’s security controls not only exist but also comply with established standards. Unlike SOC 2 Type I, which only reviews controls at a single point in time, Type II validates that those controls are effective over an extended period.

Here’s why this is essential for insurers:

• Highly sensitive policyholder and claims data must be protected year-round.
• Regulators and auditors expect ongoing security, not one-time assurances.
• A breach caused by a vendor without strong SOC 2 Type II oversight could expose millions of records, resulting in penalties and potentially class-action lawsuits.

SOC 2 Type II is your proof that a vendor’s controls are tested and trusted in practice. 

2. ISO 27001 - An Extra Sturdy Haunted House Lock  

ISO 27001 provides a global gold standard for information security management. Think of it as the lock on the haunted mansion door, without it, intruders can slip right in.

Key reasons it matters:

• International recognition: ISO 27001 is respected globally, making it essential for insurers with multinational operations or global reinsurance partners.
• Structured risk management: It requires vendors to systematically identify, assess, and reduce risks, reducing vulnerabilities before they turn into costly incidents.
• Demonstrates maturity: ISO 27001 compliance signals to customers that they can trust a vendor is operating within a structured, well-documented security framework, not ad-hoc practices.

Without ISO 27001, you may be opening the front door of your house and inviting unwanted guests. 

3. NYDFS 23 NYCRR 500 - Keeping Candy Bags Safe in Any Neighborhood 

This New York regulation applies to all financial services businesses, including insurers. Just as families on your block enforce “candy safety rules” on Halloween night, NYDFS 500 ensures vendors follow strict guidelines on cybersecurity, breach notification, and risk assessments.

To be NYCRR 500 compliant, an organization must:

• Maintain a formal cybersecurity program with written policies tailored to its risks.
• Appoint a Chief Information Security Officer (CISO) to oversee its cybersecurity strategy.
• Conduct regular risk assessments to identify threats.
• Implement data encryption, multi-factor authentication, continuous monitoring, and other safeguards.
• Ensure third-party vendors also follow strong security standards.
• Have an incident response plan and notify regulators of cybersecurity events within 72 hours.
• Submit an annual certification of compliance to the New York Department of Financial Services (NYDFS).

For insurers, this regulation stands as one of the strictest cybersecurity regimes in the US, designed to protect policyholder data and reduce liability. A vendor that can’t demonstrate NYCRR 500 compliance is handing you a Halloween “trick” that could turn into regulatory penalties and reputational damage. 

4. HIPAA – A Mask that Conceals Patients’ Sensitive Data  

For insurers dealing with health-related claims or benefits, HIPAA compliance is non-negotiable. Like people wearing masks at a costume party to protect their identity, this standard keeps your customers’ sensitive health data from being exposed.

HIPAA matters because it:

• Protects PHI: Protected Health Information (PHI) is some of the most valuable data for cybercriminals.
• Prevents fines: HIPAA violations can lead to penalties in the millions, not to mention legal costs and reputational harm.
• Builds trust: Policyholders expect their most personal data to remain private.

Without HIPAA compliance, an AI vendor could mishandle claims data and unmask deficient security practices.  

5. GDPR - The Old World Magic Spell

The General Data Protection Regulation (GDPR) casts one of the most powerful data privacy protections in the world. For US-based insurers serving global markets, compliance isn’t optional – it’s mandatory.

Think of GDPR as a binding spell: it compels vendors to honor customer consent, limit data use, and grant individuals the right to “vanish” from systems upon request. Breaking this spell can unleash serious consequences, including:

• Extraterritorial reach: Even US insurers fall under GDPR if they process EU residents’ data.
• Severe penalties: Fines can climb as high as 4% of global annual revenue.
• Customer rights: GDPR enforces transparency, access, and deletion rights that customers worldwide are beginning to expect as standard.

Ignore GDPR at your own peril – it may come back to haunt you. 

6. CCPA - The California Pumpkin Lantern  

The California Consumer Privacy Act (CCPA) lights the way for consumer rights in the US. Much like a jack-o’-lantern guiding trick-or-treaters to your house, CCPA requires vendors to illuminate users about how their data is used, offer customers the right to opt out, and protect consumer information from misuse.

Why it matters to insurers:

• Consumer rights are expanding: California is leading the way, and other states are adopting similar laws.
• Transparency is key: Vendors must be able to explain how data is collected, used, and shared.
• Avoid costly litigation: Non-compliance opens the door to private lawsuits and regulatory fines.

If your AI vendor cannot demonstrate CCPA readiness, you may be inviting a lawsuit straight to your doorstep. 

This Halloween, don’t let a masked vendor hand you empty promises. Choose an AI partner who can back their compliance claims with proven certifications. After all, in insurance, the sweetest treat is trust you can verify. 

Don’t let your AI strategy get haunted by weak security or missing certifications. Download a copy of our AI Vendor Evaluation Questionnaire to help you separate trusted partners from pretenders.