A third party administrator is frequently hired by an insurance company to perform certain administrative tasks on behalf of the insurer. This working relationship is established by a contract, which specify the functions, responsibilities, and authority granted to the TPA. The insurance company retains responsibility for the actions of third party administrators that it hires.
Some third party administrators specialize in particular types of claims, like workers’ comp or employment benefit claims, while other larger TPAs can handle multiple lines of claims service. The range of claims typically handled by a TPA include the following:
- Auto liability
- Construction defects
- Employee benefits (life, health, and pensions)
- Employment practices
- General liability
- Product liability
- Professional liability
- Water damage
- Workers’ compensation
Many insurance companies consider a TPA to be an extension of their claims department. The use of a TPA can also be a cost-effective approach to claims handling, permitting an insurer to lower their cost per claim while still maintaining a high level of claim service.
Routine tasks provided by a TPA include claims handling, policyholder account maintenance, communications, management reporting, and billing and collections of premiums, deductibles, or co-pays.
As the insurance industry has grown more sophisticated, TPAs have also increased their level of service offerings. Litigation management, risk management, data security, predictive analytics, and medical cost containment are a few of the capabilities now available from some TPAs.
Regulatory Considerations for TPAs
While the rules may vary across states, generally a TPA must be licensed by the Department of Insurance or a similar regulatory agency in the state(s) in which it conducts business.
The National Association of Insurance Commissioners publishes a detailed NAIC Guideline titled “Registration and Regulation of Third Party Administrators” as a part of its Model Regulation Service.
While the number of third party administrators is not readily available, A.M. Best includes coverage on more than 1,800 TPAs in its annual Directory of Third Party Administrators.
Some of the largest U.S. third party administrators include Sedgwick Claims Management, Gallagher Bassett, Crawford & Company, and York Risk Services.
Click on the link to read about Bill Hager’s expertise in regard to third party administrators.
Material for this article was taken from a collection of industry sources relating to the subject.
In all of the general statements here, see the state law of the controlling jurisdiction. Every case is different and circumstances vary widely depending on the governing state law, policy provisions, and related considerations.
This blog is provided for educational purposes only. It is not intended to provide legal advice or an opinion in regard to any topic discussed. The blog should not be used as a substitute for legal advice from a licensed attorney in your state.