Key Takeaways
- Cyber insurance helps manage residual DPDP risks such as breach response costs, legal defence, and third-party claims.
- The DPDP Act, 2023 and DPDP Rules 2025 create a mandatory data protection framework that directly affects business risk and compliance.
- All businesses handling digital personal data—including startups, MSMEs, and foreign entities—fall within the Act’s scope.
- Verifiable consent and Data Principal rights make data privacy an ongoing, auditable operational responsibility.
- Significant Data Fiduciaries face stricter compliance duties, higher costs, and increased liability exposure.
- Breach reporting requirements and heavy penalties elevate data protection to a board-level financial risk.
Every day, businesses in this digitally-driven world produce, save, and manage volumes of personal data. Customer records, employee databases, vendor details, marketing analytics, and behavioral insights are all built on digital personal information. Due to the increase in cyber incidents and global regulatory pressure, India’s Digital Personal Data Protection Act, 2023, is a major turning point towards how businesses need to handle data protection and data privacy.
The DPDP Act, 2023, in conjunction with the DPDP Rules 2025, lays out a well organized compliance framework that has a direct effect on a company’s operational risk, financial exposure, and insurance planning. For data driven companies that treat data as a strategic asset, this legislation is not only a legal obligation but also a fundamental business risk management directive.
What Is the Digital Personal Data Protection Act, 2023?
The Digital Personal Data Protection Act, 2023, commonly referred to as the DPDP Act, 2023, represents India’s first comprehensive legislation aimed exclusively at regulating the processing of digital personal data. Its core objective is to balance a person’s right to data privacy with a company’s legitimate need to use personal data for lawful purposes.
The DPDP Act applies to any processing of personal data done in digital form or digitised later. Significantly, it goes beyond the borders of the country. Therefore, foreign providers of goods or services that profile Indian users are also covered by its scope. For businesses, this means that their compliance obligations transcend geographical boundaries and traditional regulatory comfort zones.
Certain Key Definitions Under DPDP Act
Understanding the terminology used under the DPDP Act is essential for correct compliance interpretation.
Personal data refers to any data about an identifiable individual. When this data is processed digitally, it becomes digital personal data under the law. Businesses that determine the purpose and means of processing such data are classified as Data Fiduciaries, while third parties processing data on their behalf are Data Processors.
The individuals whose personal data is collected are called Data Principals. In certain high-risk cases, businesses may be classified as Significant Data Fiduciaries based on volume, sensitivity, or impact of data processed. These classifications determine the level of compliance, reporting, and insurance exposure.
The Idea of Verifiable Consent Under DPDP Act
Under the DPDP Act verifiable consent introduces a higher benchmark of responsibility that businesses are expected to observe in the collection and use of personal data. Organisations are mandated to go beyond mere obtaining consent from Data Principals and be capable of substantiating at any time that such consent was voluntary, informed, specific, and unambiguous. For businesses, this shifts consent from a passive checkbox to an auditable process that is facilitated by clear notices, user activation, and trustworthy records that show the time, manner, and purpose of consent.
From a practical standpoint,the concept of verifiable consent compels businesses to redesign their digital workflows, user interfaces, and backend systems. Consent logs, versioned privacy notices, and traceable consent withdrawal mechanisms become the indispensable pillars of data protection compliance. Failure to maintain verifiable consent can, on the one hand, result in regulatory penalties and, on the other, breach of contracts and enhanced liability in the case of a personal data breach. Hence, this obligation constitutes a vital component linking DPDP compliance with business risk management at large.
Consent Manager Under DPDP Act
The idea of a Consent Manager under the DPDP Act puts forward an intermediary framework that aims to simplify and standardise the processes of obtaining consent by businesses from the Data Principals and related interactions. A Consent Manager is an entity registered with the Data Protection Board of India that facilitates individuals to give, manage, review, or withdraw consent in a manner that is transparent and easily accessible. For businesses that deal with large volumes of digital personal data, this mechanism introduces more clarity and uniformity in consent management, while at the same time, strengthens the principles of data protection and data privacy.
From the angle of a business, interacting with a Consent Manager might lead to a decrease in operational friction and risk of non compliance. It enables organisations to have a structured, verifiable consent trail, thereby eliminating the need to build a complex consent infrastructure entirely in-house. At the same time, businesses remain accountable for lawful processing under the DPDP Act, 2023 and should ensure that the partnership with a Consent Manager is in harmony with their internal controls, contractual obligations, and insurance risk assessment- most notably in situations related to disputes, audits, or personal data breach investigations.
Citizen’s Rights (Data Principal Rights) Under DPDP Act
The DPDP Act considerably strengthens citizen’s rights by giving them the legal recognition of Data Principals, i. e. , persons whose data is to be protected, with the right to have control over their data. These include the right to know how their data is being processed, right to correction or erasure of personal data if the data is inaccurate, and right to get the remedy for grievances by way of redressal through the mechanisms laid down in the Act. With the DPDP Act making these rights part of the law, data privacy becomes the centre around which business operations have to revolve, thus, organisations are required to handle the digital personal information with greater transparency and accountability.
For businesses, the rights of the Data Principal mean real operational obligations instead of abstract legal concepts. Companies are obliged to put in place systems and workflows that can respond to rights requests within the specified timelines and at the same time keep records of the actions taken. If these rights are not honoured, it may invite regulatory scrutiny, financial penalties and loss of reputation . Hence, ensuring compliance with citizen rights under the DPDP Act is a very important part of enterprise risk management and data protection strategy.
Duties of Data Fiduciaries Under DPDP Act
Business entities that fall under the category of Data Fiduciaries bear the core responsibility pertaining to compliance with data protection. These include ensuring data accuracy, implementing reasonable security safeguards, and collecting only what is necessary for a specified purpose.
Another critical obligation is that of data retention. Personal data should not be retained for an indefinite period and must be deleted when the purpose is achieved, except when it is required by law. The duties therefore require consolidation across IT, legal, HR, and risk management teams, and that is one reason why DPDP Act compliance cannot be treated as a siloed legal task.
Significant Data Fiduciaries (SDF)
Certain businesses may be notified as Significant Data Fiduciaries based on factors such as volume of personal data processed, sensitivity, or potential harm to Data Principals. These entities face additional obligations, including appointing a Data Protection Officer, conducting periodic data protection impact assessments, and undergoing audits.
This categorization greatly increases compliance-related costs and liability for large enterprises, fintech companies, insurers, and digital platforms. It also heightens the need for robust cyber insurance and management liability coverage.
DPDP Rules 2025
The DPDP Rules 2025 form the procedural framework of the Act. They define the format of consent notices, the manner in which records have to be retained, as well as the procedure for dealing with grievances.
The rules also provide guidelines for reporting instances of breach, ensuring there is enforcement efficiency. From a business perspective, DPDP Rules 2025 turn “doctrinal niceties into operational requirements,” meaning that these regulations must be implemented.
Personal Data Breach Management and Notification
Unauthorised access to, disclosure of, modification of, or loss of personal data in digital format is considered to be a personal data breach under the DPDP Act. The concerned business entities are required to notify the Data Protection Board of India in case of personal data breaches.
The financial and reputation costs for a breach can be significant. As per global research, the average annual cost of a data breach is steadily rising with regulatory losses contributing largely to the same. The DPDP Act stipulates that any failure to report or mitigate breaches properly can multiply these costs.
Penalties Under DPDP Act
Another widely debated feature of the DPDP Act, 2023 has been its penalty system. The law empowers authorities to impose monetary penalties running into hundreds of crores for serious non-compliance, such as failure to prevent data breaches or violations of the rights of a Data Principal.
But these penalties are not only punitive; they also involve direct financial risk. For companies, this means that data protection becomes no longer just a box to tick but a financial risk at the board level. These require strategic planning and insurance support.
Applicability of the DPDP Act to Businesses
The DPDP Act applies to all types of businesses. The provisions of this Act impacts start-ups collecting user email ids, MSMEs offering payroll software solutions, online portals receiving payments from customers, and global SaS providers processing Indian user data and so on.
The relevance of the DPDP Act specifically derives from its applicability to any sector. There is no exemption based purely on size or revenue. A universal requirement is that any entity handling digital personal information is required to provide the necessary data protection. It becomes an operational mandate for any online business organization.
Role of Business Insurance in DPDP Act Compliance
Legal compliance alone does not eliminate financial risk. Even the most compliant businesses can experience data breaches, regulatory investigations, or third-party claims. Business insurance acts as a financial buffer against these uncertainties.
Insurance does not replace data protection obligations, but it complements them by transferring residual risk. In the DPDP context, this includes costs related to breach response, legal defence, and regulatory proceedings.
How Can Cyber Insurance Help?
Cyber insurance is particularly relevant in the DPDP era. Policies can cover incident response costs, forensic investigations, legal expenses, customer notification, and business interruption resulting from data breaches.
While penalties under the DPDP Act may not always be insurable, associated defence costs and third-party claims often are. For data-driven businesses, cyber insurance becomes a strategic necessity rather than an optional add-on.
How To Prepare Your Business for DPDP Act Compliance?
Effective DPDP readiness begins with data mapping. Businesses must understand what personal data they collect, where it is stored, and who has access. This should be followed by policy updates, consent mechanism redesign, employee training, and vendor risk assessment.
A structured approach to compliance includes legal review, technical safeguards, operational controls, and financial risk planning. Businesses should document processes, test breach response plans, and periodically audit their data protection framework.
Equally important is aligning compliance efforts with insurance reviews. As data protection risks evolve, insurance coverage must be reassessed to ensure adequacy and relevance.
Wrapping It Up
The Digital Personal Data Protection Act, 2023 goes beyond being just a regulatory milestone; it signifies a radical change in the way businesses handle personal data. The DPDP Rules 2025, by providing operational clarity, have made the enforcement of the Act a reality rather than a mere possibility.
For contemporary businesses, data protection, data privacy, and financial resilience have become inseparable. Organizations that align legal compliance with robust insurance strategies will have a competitive advantage in navigating the new regulatory landscape and gaining the trust necessary for a data driven economy.
As businesses get accustomed to the Digital Personal Data Protection Act, 2023 and the DPDP Rules 2025, the management of data protection risk should not be viewed solely as a requirement for legal compliance; it is also about financial resilience. Regulatory penalties, data breach response costs, legal defence expenses, and third party claims can aggregate to a heavy burden on even well prepared organisations. Here, the role of a well thought out insurance strategy is instrumental in ensuring DPDP readiness.
Bimakavach helps businesses identify, assess, and insure against data privacy and cyber-related risks arising under the DPDP Act. From cyber insurance and professional indemnity to D&O and management liability cover, Bimakavach enables businesses to secure tailored protection aligned with their data exposure and compliance obligations. With expert guidance and a simplified buying experience, Bimakavach supports businesses in turning DPDP compliance into a stronger, more resilient risk management framework.
