Third Party Administrators

November 23, 2009

How to Select

When an organization decides to self-insure or retain a major part of its risk, it must determine whether to assume any or all of the administrative responsibilities. Selecting the correct servicing company becomes a major challenge when the organization decides to outsource some service functions. Risk managers should not assume that in-house servicing capabilities are prestigious. The goal of self-insurance is to achieve maximum efficiency at minimum cost, and the decision to retain or outsource services must be measured against that goal.

Service Companies

The term “service company” has several meanings because there has been no standardization of terminology in the service company area.

A service company in the property and casualty industry performs part of the self-insurer's administrative duties, including general administrative services and support services. The term third-party administrator (TPA) is often used to refer to all service companies. Usually, a TPA is able to do one or more of the following:

1.     Investigate, review, adjust, negotiate, and pay claims;

2.     File governmental reports; and

3.     Provide the self-insurer with periodic status reports. 

It is not necessary that a company have the authority to write claim checks in order to be a TPA. Not every TPA is able to provide every service.

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