Texas businesses with 250+ affected residents have just 30 days to report breaches – but there’s a little-known “Safe Harbor” provision that could save companies under 250 employees from punitive damages. Are you missing out on protection that also slashes insurance premiums?
Key Takeaways
- The TX 250-Resident Rule requires businesses to notify the Texas Attorney General within 30 days when a data breach affects 250 or more Texas residents, making rapid incident response vital.
- Senate Bill 2610 creates a “Safe Harbor” protection for businesses under 250 employees, shielding them from punitive damages if they maintain compliant cybersecurity programs.
- Texas cyber insurance premiums can be reduced when businesses demonstrate compliance with NIST frameworks or CIS Controls.
- Non-compliance with Texas data protection laws can result in civil penalties, such as up to $50,000 per violation under ITEPA and up to $7,500 per violation under TDPSA, in addition to potential business disruption costs.
- Small business exemptions under the Texas Data Privacy and Security Act don’t apply if companies sell sensitive personal data to third parties.
Small business owners across Texas face a complex web of cybersecurity regulations that directly impact their insurance requirements and costs. Understanding these rules isn’t just about avoiding penalties – it’s about protecting your business while potentially saving thousands on insurance premiums through strategic compliance.
The 250-Texas Resident Breach Notification Requirement
The cornerstone of Texas cybersecurity compliance centers on what experts call the “TX 250-Resident Rule.” When a data breach affects 250 or more Texas residents, businesses must electronically report the incident to the Texas Attorney General within 30 days of discovery. This requirement applies regardless of where the company is headquartered – if Texans are affected, Texas law applies.
The notification timeline is significantly more compressed than what many businesses expect. While companies have up to 60 days to notify affected individuals, the Attorney General’s office requires immediate attention. Missing this 30-day window places businesses on a publicly accessible data breach list maintained by the state. Cybersecurity guides help business owners navigate these complex reporting requirements step-by-step.
The Attorney General’s enforcement approach has become increasingly focused on compliance. In January 2025, the state pursued monetary relief exceeding $1 million in its first enforcement action under the Texas Data Privacy and Security Act, demonstrating the Attorney General’s commitment to compliance.
Texas Identity Theft Enforcement and Protection Act (ITEPA) Explained
ITEPA serves as the foundational data security law for all businesses operating in Texas. This legislation requires companies to implement and maintain “reasonable procedures” to protect sensitive personal information from unlawful use or disclosure. The law creates the legal framework that drives much of the cyber insurance demand in Texas.
What Qualifies as Sensitive Personal Information (SPI)
Texas law defines Sensitive Personal Information to include any combination of an individual’s name with their Social Security number, driver’s license number, or financial account information paired with required access codes. Texas explicitly includes health-related information in this definition – any data related to physical or mental health conditions, healthcare provision, or payment for medical care.
This expansive definition creates immediate overlap with federal HIPAA regulations but grants the Texas Attorney General independent enforcement authority. Healthcare providers and organizations handling health-related data fall under these requirements.
Mandatory Security Procedures for Texas Businesses
ITEPA doesn’t specify exact security measures, instead requiring “reasonable procedures” appropriate for the size and nature of the business. However, insurance underwriters and the Attorney General’s office increasingly expect businesses to demonstrate compliance through documented security programs. Generally expected security practices include secure data storage, access controls, employee training, and proper disposal of records containing SPI.
The law also mandates that businesses destroy records containing SPI when they’re no longer needed for legitimate business purposes. The $250,000 penalty under ITEPA is specifically for failing to take reasonable action to provide notice to consumers after a breach, making document retention policies a critical compliance element.
Civil Penalties: What Non-Compliance Actually Costs
The financial consequences of non-compliance extend far beyond the initial penalties. Texas law creates a tiered penalty structure that can quickly escalate into business-threatening amounts, especially for companies experiencing multiple violations or affecting large numbers of residents.
Attorney General Enforcement Powers
The Texas Attorney General wields broad enforcement authority under both ITEPA and the newer Texas Data Privacy and Security Act (TDPSA). The office can initiate civil investigative demands (CIDs), requiring businesses to produce extensive documentation about their security practices, breach response procedures, and affected individuals.
Before pursuing enforcement action under TDPSA, the Attorney General must provide businesses with a 30-day “Right to Cure” notice. This window allows companies to fix violations and provide documented proof of remediation. However, insufficient cures or repeat violations can lead to full enforcement proceedings with substantial financial consequences.
Penalty Structure Breakdown
ITEPA violations can cost businesses between $2,000 and $50,000 per occurrence. For large breaches affecting thousands of records, these costs multiply rapidly based on the nature of the violation rather than per-record calculations.
TDPSA adds another layer of potential penalties, with violations costing up to $7,500 each. The law also allows for injunctive relief, potentially forcing businesses to completely restructure their data handling practices under court supervision.
Texas Data Privacy and Security Act (TDPSA) Impact on Small Businesses
The TDPSA, effective July 2024, represents Texas’s entry into state privacy legislation similar to California’s CCPA. The law applies to any entity conducting business in Texas or providing products consumed by Texans, creating broad jurisdictional reach even for out-of-state companies.
Small Business Exemptions Under SBA Rules
The TDPSA provides relief for legitimate small businesses by exempting entities that meet Small Business Administration (SBA) size standards. These exemptions recognize that compliance costs can be disproportionately burdensome for smaller organizations with limited resources and technical expertise.
SBA size standards vary by industry. For some service businesses, the threshold can be under $7 million in average annual receipts over the previous three years. Some manufacturing businesses may qualify with fewer than 500 employees. Different industries have specific receipt-based thresholds that vary depending on the specific business type.
When Exemptions Don’t Apply
Small business exemptions disappear entirely when companies engage in the “sale” of sensitive personal data. Under TDPSA, “sale” is broadly defined to include sharing personal information for monetary consideration or other valuable benefits. This may include practices like sharing customer lists with marketing partners or participating in advertising networks that use personal data.
When exemptions don’t apply, small businesses must obtain explicit consumer consent before selling personal data, implement Data Protection Assessments for high-risk activities, and provide consumers with rights to access, delete, and correct their personal information.
Senate Bill 2610: The Safe Harbor Protection for Businesses Under 250 Employees
Senate Bill 2610, effective September 1, 2025, represents the most significant cybersecurity incentive for small businesses in Texas history. The law creates legal “Safe Harbor” protection for companies with fewer than 250 employees, shielding them from punitive damages in data breach lawsuits if they maintain compliant cybersecurity programs.
NIST Cybersecurity Framework Requirements
To qualify for Safe Harbor protection, businesses must implement cybersecurity programs based on recognized industry standards. The NIST Cybersecurity Framework provides a risk-based approach with five core functions: Identify, Protect, Detect, Respond, and Recover. This framework helps organizations systematically manage cybersecurity risks appropriate to their size and complexity.
NIST compliance requires businesses to maintain documented risk assessments, implement appropriate security controls, establish incident response procedures, and conduct regular reviews of their security posture. The framework’s flexibility allows businesses to tailor their approach while meeting the law’s requirements for “reasonable security measures.”
CIS Controls Implementation Standards
The Center for Internet Security Controls offer another pathway to Safe Harbor compliance. CIS Controls provide specific, prioritized cybersecurity actions developed through international expert collaboration. Implementation Group 1 (IG1) controls are designed for small businesses and include foundational safeguards.
Examples of controls aligned with such frameworks include maintaining hardware and software inventories, implementing multi-factor authentication, deploying endpoint detection and response tools, and conducting regular security awareness training. These controls are considered practical and achievable for businesses without dedicated IT security staff.
Protection from Punitive Damages
Safe Harbor protection eliminates exposure to punitive damages, which can exceed actual damages significantly in cyber liability lawsuits. This protection requires businesses to demonstrate that they maintained a compliant cybersecurity program at the time of the breach, with the law applying to causes of action accruing on or after its effective date of September 1, 2025.
However, Safe Harbor doesn’t eliminate all liability. Businesses remain responsible for actual damages, regulatory penalties, and legal costs associated with data breaches. The protection specifically targets the unpredictable punitive damage awards that can destroy otherwise viable businesses.
Before diving deeper into specific compliance requirements, it’s valuable to understand where your business currently stands and what protections you might be missing. The calculator below assesses your compliance posture against Texas cybersecurity regulations and identifies specific gaps that could be costing you money in insurance premiums or exposing you to regulatory penalties. Take two minutes to answer four questions about your current security practices. The calculator will provide a compliance score, risk assessment, and prioritized recommendations based on your specific situation – including whether you qualify for Safe Harbor protection under Senate Bill 2610.
🛡️ Texas Cyber Compliance Calculator
Assess your compliance level and potential insurance savings
The assessment above provides a starting point for understanding your compliance gaps and potential cost savings. Many Texas business owners discover they’re closer to framework compliance than expected – existing security measures often align with NIST or CIS Controls with minimal additional investment. The key insight from this assessment is that cybersecurity compliance isn’t just about avoiding penalties. For businesses under 250 employees, framework implementation delivers immediate ROI through Safe Harbor protection and insurance premium reductions that typically provide positive returns within 12-18 months. If your assessment revealed compliance gaps, the following sections detail exactly what each framework requires and how to implement controls appropriate for your business size and risk profile.
Cyber Insurance Policy Components Texas Businesses Need
Cyber insurance policies in Texas must address both the immediate costs of incidents and the specific regulatory requirements created by state law. Understanding the distinction between first-party and third-party coverage helps business owners select appropriate protection levels.
First-Party Coverage: Data Recovery and Business Interruption
First-party coverage addresses direct losses incurred by the business following a cyber incident. In Texas, where ransomware attacks can shut down operations for weeks, business interruption coverage becomes critical. Policies should cover lost revenue, continuing expenses, and extra costs incurred to minimize downtime.
Data recovery and system restoration coverage pays for forensic investigation, data reconstruction, and system rebuilding after attacks. Modern cyber insurance policies increasingly cover “system failure” incidents beyond just security breaches, including cloud provider outages and hardware failures that disrupt business operations. Ransomware and extortion coverage provides access to specialized negotiation firms and covers ransom payments when necessary to restore operations quickly.
Third-Party Coverage: Regulatory Fines and Lawsuits
Third-party coverage defends against external claims and regulatory actions. Privacy liability protection covers lawsuits filed by individuals whose data was exposed, including legal defense costs, settlements, and judgments. While TDPSA doesn’t provide private rights of action, individuals can still pursue negligence or contract breach claims.
Regulatory fines and penalties coverage addresses the civil penalties assessed by the Texas Attorney General under ITEPA or TDPSA. This coverage also pays for legal representation during Attorney General investigations and Civil Investigative Demands. Media liability protection covers claims of copyright infringement, defamation, or social media incidents that increasingly affect businesses with digital marketing presence.
Required Documentation for Insurability
Insurers commonly require extensive documentation before binding coverage. Businesses typically must provide evidence of multi-factor authentication deployment, endpoint detection and response systems, employee security training completion records, and incident response plan testing results. Insurers also commonly review third-party risk management procedures and vendor security assessments.
The documentation must demonstrate ongoing compliance rather than one-time implementations. Quarterly vulnerability scans, annual penetration testing reports, and continuous security awareness training records have become common requirements for favorable rates and terms.
Implementing Compliance Reduces Insurance Costs
The financial benefits of cybersecurity compliance extend well beyond avoiding regulatory penalties. Insurance companies recognize that businesses with strong security programs represent lower risk and price their policies accordingly. Companies demonstrating NIST CSF or CIS Controls compliance typically see favorable insurance terms compared to businesses with basic security measures.
TX-RAMP certification for state contractors can result in insurance savings, as the rigorous certification process provides insurers with confidence in the organization’s security posture. Certified businesses may qualify for streamlined renewal processes without full re-underwriting.
Beyond premium savings, compliant businesses gain access to enhanced policy terms including higher coverage limits, lower deductibles, and broader coverage definitions. Compliance may lead to specific discounts recognizing the reduced punitive damage exposure these companies enjoy under SB 2610.
The investment in compliance also pays dividends through reduced incident costs when breaches do occur. Businesses with established incident response procedures, documented security controls, and trained staff typically experience faster recovery times and lower total loss amounts, further supporting favorable insurance renewals.
For guidance on implementing these cybersecurity standards and navigating Texas compliance requirements, TechEd Publishers provides clear, step-by-step cybersecurity resources designed specifically for small business owners who need practical solutions without technical complexity.