Businesses today are more interconnected than ever. As they grow, companies rely heavily on third-party vendors and services.
However, when third-party relationships are forged in a digital space, the handling of sensitive company data is no longer contained within company walls. This increases the risk of data breaches and cybersecurity threats.
As a third-party service provider, you have substantial access to clients’ confidential data. Hackers can sniff out the holes in your system, causing even the most well-built network to collapse. A research study by SecurityScorecard indicates that 98% of global companies have collaborated with at least one breached third party.
Given this scenario, it’s understandable for businesses to be concerned with third-party administrators (TPAs) and the risks they face. They need reliable and reputable security partners to mitigate cyber threats and keep their data safe.
In this article, we discuss cybersecurity for TPAs and why it is crucial for companies to prioritize data security at every step.
Impact of Cyber Threats on Third-Party Administrators (TPAs)
As a TPA, you are responsible for your client’s data. When a cyber threat compromises this data, you not only lose client trust but also risk irreversible damage to your company’s reputation and violations against regulatory compliance.
Here are some of the key consequences that TPAs face due to cyber threats:
Loss of Sensitive Data
Clients routinely entrust TPAs with sensitive financial, personal, or medical data. A cyber breach might expose this data to hackers, who may sell it to competitors or malicious entities on the dark web, compromising the identities and confidential information of thousands of your client’s customers. This incident can cause clients to terminate their contract with you or blacklist you.
You may also have to pay heavy penalties for data security violations. For example, you’ll need to guarantee compliance with the Health Insurance Portability and Accountability Act (HIPAA) if you’re a healthcare TPA managing a client’s medical records. You may face disciplinary action under HIPAA if patient data is leaked or compromised.
Loss of Credibility and Client Trust
Besides financial loss, a cybersecurity breach can cost your clients’ trust. They may switch to competing TPA firms if they don’t trust you to protect their data.
It can take years to restore the harm to your company’s reputation, and you risk losing market credibility. Acquiring new clients can be challenging until you demonstrate that your company has taken proactive steps to tighten its cybersecurity program.
A case in point is Dallas-based payroll integration firm BenefitMall, which suffered a four-month-long data breach in 2019.
This breach compromised the sensitive personal information of 112,000 customers, revealing several flaws in their cybersecurity measures—including a failure to follow two-factor authentication. It invited severe financial expenses, legal fees, recovery costs, and regulatory scrutiny.
Legal and Regulatory Compliance
TPAs on the receiving end of cyberattacks draw regulatory attention and rack up heavy fines. However, certain regulatory laws may also hold your client answerable for these breaches, significantly tarnishing your relationship with them.
For example, even if the breach occurs on the third-party vendor’s side, HIPAA holds the healthcare provider responsible for the loss of sensitive patient data.
According to Chapter 8 of the General Data Protection Regulation (GDPR), which governs the European Union (EU), an organization must ensure compliance even if they have outsourced data processing to a third-party firm.
Besides these major effects, your TPA firm may also face ongoing costs for cybersecurity reparations, significant downtime, operational delays, and, in some cases, challenges in securing cyber insurance or limited policy coverage.
Best TPA Cybersecurity Practices to Strengthen Security Measures
In April 2021, the U.S. Department of Labor (DOL) laid out new guidelines for third-party administrators to protect their clients’ data and accounts.
Here are the best practices to help you reduce system vulnerabilities and stay on top of cybersecurity measures:
1. Document Your Cybersecurity Program in Detail
Your client’s data is vulnerable to both external and internal cybersecurity risks. To protect it, drawing up a formal and well-documented cybersecurity framework for your IT infrastructure is essential. This entails defining and implementing security policies and procedures to prevent unauthorized access and breaches of information systems.
Your teams will be able to swiftly respond to cybersecurity events by using this documentation to identify potential risks to assets. The security policies you’ve established for your systems must also fulfill certain criteria to remain valid and relevant. These criteria include the following:
- Acquiring approval from senior leadership
- Annually reviewing the policies, guidelines, and standards and updating them as required
- Explaining the terms of the cybersecurity documentation to users
- Periodically reviewing the plans from independent third-party auditors to ensure compliance
For example, as a third-party vendor, you may draft a cybersecurity policy that formally governs encryption practices, teams with access controls, and practices detailing proper data handling.
With approval from senior management, you can then make this policy a company-wide priority and review it regularly to address evolving threats.
2. Perform Annual Risk Assessments
You should include risk assessment in your yearly review process, as it is a crucial tool to help you spot which assets in your organization are most sensitive to infosec risks.
It can estimate the extent of risks and prioritize various cyber risk scenarios, helping you build an effective schedule for risk assessment. DOL guidelines recommend “codifying the scope, methodology, and frequency” of risk assessment to help with the following:
- Detect and document cybersecurity risks according to their type, impact, and risk level.
- Set internal criteria to assess how well your IT systems protect sensitive data, keep it accurate, and remain operational. For example, your company can evaluate whether existing cyber security measures such as firewalls and encryption fulfill the above criteria and mitigate risks swiftly.
- Identify and sharpen your strategies per risk scenarios, i.e., classify high-risk areas needing mitigation and manageable low-risk areas.
- Update your system controls to address emerging threat vectors.
3. Engage a Third Party Auditor to Evaluate Security Controls
A well-documented security control program is beneficial, but won’t give your data complete coverage. Also, TPAs may fail to recognize gaps and vulnerabilities if they are too close to information systems. You need a fresh, unbiased perspective that can report on any risks and weaknesses your internal team could have overlooked.
A third-party cybersecurity auditor works well in such cases. They assess your company’s existing security measures, identify gaps or vulnerabilities in systems, and test the effectiveness of security controls. As part of their assessment, they may also make recommendations for improving your security posture.
By thoroughly reviewing your cybersecurity systems, a third-party auditor can help you meet the following regulatory standards:
- Audit reports and files detailing penetration test reports and risk analyses
- Documentation outlining the corrective measures against weaknesses
- Audit reports that comply with standards set by the regulatory authority
4. Outline Clear Roles and Responsibilities for Information Security
The Chief Information Security Officer (CISO), together with other senior management personnel, is typically in charge of designing and maintaining a cybersecurity strategy in a third-party setup. As such, the DOL advises that only skilled and trusted personnel participate in this program, preferably those with the following skills:
- Adequate cybersecurity experience and industry certifications like CISSP or CISM
- Regular background checks to verify the personnel has a clean history and poses no risk.
- Ongoing training on the latest cybersecurity practices to help them detect and address evolving threats. For example, the team should participate in regular internal workshops or attend cybersecurity conferences to stay up-to-date on the latest malware and ransomware attacks.
- Awareness and up-to-date knowledge about the latest cybersecurity strategies, whether by monitoring threat intelligence platforms or attending webinars to identify advanced persistent threats (APTs).
5. Establish Clear Access Control Procedures
Your clients will rest easy knowing that their data is in the hands of a TPA that prioritizes access control. Access control is a vital security technique to help prevent unauthorized team members from lurking around sensitive data.
This strategy limits who can view or manage data to a select few trusted members using techniques such as authentication and authorization. Authentication is a technique to verify the identity of trusted personnel, while authorization grants permission to only certain data or team members.
One of the techniques is role-based access control, or RBAC, which limits access privileges to data based on a team member’s role. For example, only senior members of a TPA payroll team may have access to employee payroll data, and only higher HR management can access employee benefits records.
Another technique advises that employees must use unique and complex passwords to access systems storing sensitive data. You can prevent brute-force cybersecurity attacks when employees use passwords that fulfill certain complexity requirements.
For example, you can use a mix of uppercase, lowercase characters, and alphanumeric elements to create an impenetrable password.
Another authentication technique involves using multi-factor authentication (MFA) for an additional layer of security. MFA combines using an existing verification element, such as a password, with another security token, like a trusted device, a fingerprint, or a face scan.
One of the main reasons BenefitMall, the TPA firm, encountered a security breach was the absence of multi-factor authentication—a measure implemented after the breach.
6. Evaluate Assets Stored in the Cloud
Sometimes, third-party administrators rely on cloud computing technology to store their clients’ data economically. While convenient, this comes with certain risks, as your company has limited control over this data. You must evaluate a cloud service provider’s security posture to reduce cyber threats and manage risks in such scenarios.
One of the ways to do this is to conduct a risk assessment that reviews the provider’s cybersecurity controls and data protection policies. For example, you might review the cloud provider’s security certifications or data encryption methods to understand how they manage data backups and access controls.
Your TPA firm should also ensure your cloud provider meets prescribed criteria, whether it is their incident response protocols or compliance with regulatory standards for data handling.
Performing other checks, such as determining whether your cloud service provider reviews security practices for emerging threats or if it follows contractual guidelines, can more comprehensively ensure the safety of your clients’ cloud-stored data.
7. Conduct Regular and Up-to-Date Cyber Security Training for TPA Employees
Your team makes up the first line of defense against malicious attacks. However, human error is behind three in four cybersecurity breaches, according to CISOs.
This emphasizes the importance of training employees on everything from attack vectors to incident response techniques. TPA firms will benefit from designing and implementing a periodic cybersecurity awareness program. As part of this program, employees can learn to detect potential threats such as suspicious emails and phishing attempts.
Employees should also be aware of new threat vectors such as deepfake technology, which can impersonate trusted individuals to commit identity theft—expected to cost companies nearly $9.5 trillion worldwide by the end of 2024.
Employees also need to know how to correctly validate their suspicions before disclosing sensitive information to such impersonators. It should also be a top priority to report such incidents. To that end, your TPA firm must have a dedicated security hotline or email where employees can report threats.
8. Set Up a Business Resiliency Program
A potential cyber threat or incident can derail operations quickly, resulting in downtime and revenue loss. A business resiliency program can help your teams swiftly respond to crises without disrupting business operations or compromising your data assets.
There are three components to a business resiliency program:
- Business Continuity Plan (BCP): A BCP outlines the steps your company can take to restore critical business operations during a cybersecurity event. For instance, BCP can help your operations get back on track by rerouting them to another system or initiating a backup during an outage brought on by a potential cyber threat.
- Disaster Recovery Plan (DRP): This plan is more reactive and focuses on recovering your IT infrastructure after a cyber threat incident, such as a data breach or server crash
- Incident Response Plan (IRP): The IRP serves as a guide that instructs IT teams on how to detect and respond to cyber threat incidents. For example, if your team detects multiple login attempts from an unknown source, an IRP can help guide your next steps, whether informing the CISOs, updating passwords across the affected accounts, or isolating systems under threat.
9. Encrypt Stored and In-Transit Sensitive Data
Encrypting your client data—at rest and in transit—is one of the best ways to safeguard and help prevent sensitive data loss. Encryption entails converting readable plaintext into a random string of characters known as “ciphertext,” which is not readable by humans. You can access the readable data only through a specific encryption key, which only critical team members should be privy to.
Aside from encrypting the data, your TPA company must ensure the encryption keys fulfill current standards, such as message authentication and hashing. These mechanisms prevent the tampering of critical data using verification and fingerprinting techniques.
10. Ensure Technical Controls Meet Security Standards
TPA companies also need to ensure that their technical security solutions are at the top of the game. This involves routing tools or control techniques through your system’s software, hardware, or firmware to protect unauthorized data access. Here are some security standards to follow while ensuring technical security solutions:
- Regularly updating vital system components such as hardware, software, and firmware models with the latest security fixes.
- Using vendor-vetted firewalls, triggering intrusion detection system (IDS) alerts, and other prevention tools to trace unusual activity or access.
- Fixing software patches regularly through automated tools to fill system gaps.
- Conducting regular antivirus scans to weed out malware.
- Storing sensitive data on distinct network segments to reduce exposure to threats—also known as network segregation.
- System hardening measures that disable risky features to reduce entry points for attackers. For example, turning off remote access for non-vital employees.
- Data backup for quick recovery in case of data loss or hardware failure due to attacks.
11. Formally Respond to Cybersecurity Incidents
Your company’s cybersecurity program should include provisions for an incident response plan, which outlines what to do in case of a breach. This may include alerting all relevant stakeholders, senior management, law enforcement personnel, and insurers.
You must ensure your company complies with any legal requirements outlined in your contract, such as informing regulatory bodies. Simultaneously, your team must crack down on the breach, contain the threat and damage, and fix security issues to prevent future attacks.
Many TPA companies get wise after a cybersecurity event, fixing issues and patching vulnerabilities that could have prevented the incident. Indeed, it’s impossible to protect your data completely, and no company is ever impervious to cyberattacks.
Cybercriminals are always devising advanced techniques to infiltrate systems, especially third-party administrators that store a wealth of data.
Even so, it’s your responsibility to mobilize your teams, prepare your systems, and draw up airtight incident response plans to minimize cyber threats in the best possible way. Doing so can go a long way in protecting client data and increasing stakeholder trust.
Our approach at Payroll Integrations
At Payroll Integrations, the security and privacy of your data aren’t just features—they are foundational to our service.
We’ve built our platform with a deep commitment to the highest standards of data security and privacy, ensuring peace of mind for all our partners and customers.
Get in touch with our team to learn more about our SOC compliant platform.
