The rise of third-party administration
Technology and companies taking wider worldviews are driving demand for TPAs, McLarens reports.
Reports suggest that the global third-party administration (TPA) market will grow by 6.3% a year, with a market value projected to be $515 billion by 2030, compared to $281 billion in 2020. What is fuelling this mega growth in the USA? And how will the market develop?
Ongoing tough market conditions, a challenging economy and increasing globalization are at the root of this trend. From a rise in catastrophic activity across the world to growing areas of civil unrest, sophisticated state-sponsored cyberattacks, a global pandemic and the military invasion of Ukraine, there are new and unprecedented risks to be managed.
The role of technology
The pandemic accelerated the adoption of technology within the claims process, leading insurers and corporations to rethink how they utilize claims staff and maximize the technology at their disposal. This has also fed directly into the ongoing, often cyclical decisions regarding insourcing versus outsourcing.
In the past two years, it has been proven that international business can be managed from anywhere. Historically, the difficulty in dealing efficiently with global claims has been the lack of consistent and accurate claims data in a single view or, in some areas of the world, any view at all. The fact that data can now be captured and reported on globally has been transformative. It enables many risk managers to take on more responsibility.
Global outlook
Many companies, while global on paper, were not in practice across their business. Today, U.S. corporations can take a more global view of how insurance is placed and more interest in how claims are managed. They are looking to adopt more control around costs and, as such, are willing to carry risks themselves through higher retention rates. This drives a need for TPAs to manage the sub-deductible work.
As a result, there is growing demand for the outsourcing of claims handling on a worldwide basis. Taking such an approach can allow risk managers to focus less on geography and more on the cost savings across their business, at a macro level and regardless of territory or claim type. The need to control cost is paramount and a truly global TPA can support risk managers in their ever-evolving responsibility to deliver.
It’s worth noting that the nature of global business is ever changing, for instance, we’ve seen major disruption to global supply chains from the like of the pandemic and, of course, geopolitical issues such as international economic sanctions against Russia. That said, the fact remains that global trade and commerce is a major focus of most U.S.-based multinationals.
The evolution of TPA
Due to the factors outlined above, the role of a risk manager has become more complex. Today, the ability of a TPA to control the full claims file, delivering accuracy and a high level of quality, even from their fieldwork, is paramount.
The most effective TPA arrangements should incorporate both desktop claims handling and traditional loss adjusting, and it has become increasingly important for TPA organizations to have local presence and expertise, and not simply a centralized management function. In the States – along with many other countries – traditional loss adjusting is returning to its original function as a high-end loss adjuster managing large and complex claims. TPAs, meanwhile, use technology and processes to manage the more attritional claims from the desk.
These developments mean that, while TPA has typically been associated with workers’ compensation claims in the U.S. market, it is becoming more and more applicable to niche, specialist areas from cyber to catastrophic events. This is a large part of what is underpinning its rapid growth. As the two services go hand in hand, it’s naturally the case that clients seek single supplier options for TPA and adjusting services on a global basis.
Kirsten Early is global head of TPA at McLarens.
Opinions expressed here are the author’s own.
Related: