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Insurance agency owners and executives are continually exploring avenues to enhance their service offerings, expand their potential customer base, and create additional revenue streams. One such strategic move gaining traction in recent years is the establishment of Third-Party Administrators (TPAs).
According to IBIS World, in 2022 there were approximately 131,000 TPAs and insurance claims adjusters businesses in the US. The market has grown an average of 2.5% per year between 2018 and 2023, reaching $287.4B in total revenue in 2023.
SPBA Past President, Fred Hunt, estimates that “about 60% (and growing) of U.S. workers [outside the] federal health employee benefits [system] are in plans using some degree of Third Party Administration (TPA) firm.”
Given these impressive statistics, it’s easy to understand why forward-thinking agencies continue to explore the potential for themselves.
In this blog post, we'll delve into the core of what a TPA is, the pivotal role they play in the insurance space, and why forming one might be beneficial for your agency.
What is a Third-Party Administrator?
A Third-Party Administrator (TPA) is a specialized entity that performs a range of administrative functions across a broad spectrum of insurance and employee benefits programs including workers comp., health insurance, commercial liability insurance, self-insurance plans, and retirement (401k) plans.
The TPA’s primary role is to handle essential aspects of policy administration, claims processing, and other operational tasks.
Core Functions of a TPA:
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Claims Processing:
TPAs are focused on achieving efficient claims management throughout the entire claims lifecycle, from initial claim submission through investigation and settlement. Their focus and expertise ensure a streamlined process, reducing the burden on carriers, investment firms, and self-insureds, and improving overall customer satisfaction.
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Policy Administration:
TPAs play a crucial role in effectuating insurance program protocols. This may include, handling enrollment, eligibility maintenance, ID card production, policy documentation, billing, collections, overseeing the endorsement and renewal process, and ensuring compliance with regulatory requirements.
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Risk Management:
In collaboration with carriers and self-insureds, TPAs contribute to minimizing loss ratios by analyzing claims data, identifying trends, and implementing preventive measures.
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Customer Service:
TPAs often act as the first point of contact for policyholders and plan beneficiaries. Their customer service teams handle inquiries and provide information related to such things as coverage and claims status. They may also draft summary plan descriptions, develop educational materials, and assist with employee education meetings.
The Interplay: How TPAs Engage with Key Stakeholders
Insurance Carriers:
In circumstances where an insurance carrier does not have a core competency in claims administration partnering with a TPA makes good business sense, because it allows the carrier to focus resources on areas where it does have expertise, such as underwriting and risk assessment.
Self-Insured Businesses:
TPAs help businesses navigate the complexities of insurance policies, develop plans custom-designed for their needs, handle claims efficiently, and in some instances analyze data and develop risk management strategies to minimize loss ratios.
Consumers:
Consumers benefit from the involvement of TPAs in various ways. Claims are processed more expeditiously, policy information is managed more effectively, and customer service is often more responsive and tailored to individual needs.
The direct interaction between consumers and TPAs also facilitates a smooth and personalized experience.
The Strategic Move: Establishing a TPA
Why Form a TPA?
Operating a TPA allows insurance agencies to diversify their service offerings, attracting a broader clientele and generating additional revenue.
Key Requirements for Establishing and Maintaining a TPA:
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Licenses and Registration:
Compliance with regulatory requirements is paramount. Agencies must obtain and maintain the necessary licenses and registrations to operate as a TPA. This involves engaging with an expert who has knowledge in state-specific laws and regulations in every jurisdiction in which the TPA operates, to ensure it complies with all applicable state requirements.
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Expertise:
Building a competent team with expertise in claims processing, policy administration, risk management, and customer service is crucial to the success of the TPA. This will ensure that the TPA operates seamlessly and delivers value to carriers, self-insured businesses, and policyholders.
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Technology Infrastructure:
At the heart of every TPA is a robust technology infrastructure. This is imperative for ensuring efficient policy management, claims processing, and data analytics.
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Cost Considerations:
While establishing and maintaining a TPA brings long-term benefits to the agency that chooses to offer this service product, it's essential to evaluate the upfront and ongoing costs. This includes technology investments, personnel salaries, and regulatory compliance expenses.
Unlocking Potential with 3H Corporate Services
The decision to form a Third-Party Administrator (TPA) is a strategic move that can transform the trajectory of your insurance agency. By expanding your core competency to include claims management you expand your potential customer base and create additional revenue streams.
With a wealth of experience helping agency owners navigate the complexities of forming TPAs, 3H Corporate Services provides tailored solutions to meet your specific needs. If you have any questions or are ready to begin the process of forming a TPA, we are here to help.