understanding the Role Third-Party Administrators Play
The insurance industry is intricate and multifaceted, and often benefits from the support of specialized entities, such as third-party administrators (TPAs), to help manage various operational aspects. A TPA is an independent organization that provides specialized services to insurance companies and self-insured entities.
TPAs have become indispensable partners for insurance companies by helping them manage daily administrative operations for insurance plans or specific products or processes, completing tasks such as:
- Processing and Administering Claims
- Estimating and Adjusting Losses
- Enrolling Customers and Issuing Invoices
- Issuing Policies
- Collecting Premiums
- Monitoring Compliance with Federal and State Regulations
Outsourcing functions to these third-party administrators allows insurance companies to focus on their core competencies, such as underwriting and risk management, while ensuring that other operational elements are efficiently handled.
If TPAs are part of your evolving organization, it is imperative to adopt a robust and successful oversight program, which requires ongoing monitoring and attention from multiple functions. Insurance companies must work to build strong relationships with their TPA partners and cultivate an environment of transparency while striving to produce efficient and timely results.
In most TPA outsourcing arrangements, the insurance company continues to maintain ultimate primary responsibility for the services performed and adhere to corporate policies and processes, as well as state and federal guidelines. Therefore, having a robust and holistic approach to managing TPAs is extremely important. When overseeing these outsourced functions, effective monitoring controls to evaluate non-compliance risk, regulatory compliance requirements and processing integrity should be prioritized.
Typical Functions of Third-Party Administrators in the Insurance Industry
Normally, functions of TPAs in the insurance industry include:
- Claims Management: TPAs play a crucial role in the claims process, acting as intermediaries between the insurer and the insured by reporting, logging and tracking claim information, assessing claimant damages, verifying documentation, determining coverage, setting case reserves and facilitating payment disbursement, among other processes. TPAs often utilize their own claims systems, or integrate or co-source claims entry and tracking with insurance entities in order to provide efficiencies, absorb variances in resources needs and expedite the claims reporting and payment process, ensuring accuracy and regulatory compliance.
- Customer Service: With a focus on enhancing customer experience, TPAs can manage policyholder inquiries, provide information on coverage and benefits and address grievances to help maintain policyholder satisfaction and loyalty.
- Risk Assessment and Fraud Detection: By leveraging advanced data analytics and technology, TPAs can assist insurers in evaluating risk profiles and identifying potentially fraudulent activities to help reduce financial losses and maintain insurance portfolio integrity.
- Regulatory Compliance: TPAs help insurance companies stay compliant with state and federal regulations, thereby avoiding legal pitfalls and ensuring smooth operations, by preparing and administering premium tax returns, performing payroll audits for premium adjustments (workers compensation programs), performing routine OFAC screenings, and outsourcing state agency and insurance licensing programs and tracking, among other tasks.
- Cost Management: By optimizing processes and employing economies of scale, TPAs can reduce administrative costs for insurers, leading to increased financial performance for insurance companies.