Third Party Administrators: The benefits of outsourcing
Outsourcing is a growing trend in the international private medical insurance market, but is it a good idea?
Brokers and other financial advisors are extremely careful in selecting providers to deliver a service to their clients. They need to be confident that the product they have recommended will deliver when the chips are down. If their chosen provider has outsourced some of their services to a Third Party Administrator (TPA) can the broker still be confident that the provider is in full control of the service offering?
This question is doubly important in the case of international private medical insurance (PMI) – where the question about whether a policy will respond when and where it is needed could literally be a matter of life or death.
What is a TPA?
A TPA is an independent organisation appointed by an insurance company to administer and manage functions in preference to delivering those services in-house. They are frequently used in the medical insurance and medical aid sectors to perform aspects of managed healthcare, such as:
• Claims processing
• Benefit management and authorisation
• Member assistance and medical evacuation
• Medical provider network management
For any insurance company the concept of outsourcing important aspects of its service offering is one it must take seriously, as clients and brokers may perceive the company to be forgoing control of some of its core functions. It is equally important, however, that clients and brokers understand what it actually means to outsource and the benefits it delivers.
Key questions
Before outsourcing, a company has to answer three key questions:
1. Will it benefit the company and its clients and why?
2. What controls should be put in place to give clients and brokers peace of mind that outsourcing will deliver what it promises?
3. How should an appropriate TPA be selected?
Outsourced services can generally be considered in two areas, administrative functions and specialised healthcare services.
Running costs and administrative capacity are big factors for any company. The more efficiently the costs can be managed, the more capital there is to invest to improve its service offering. In addition, the more capacity there is, the better those services will be delivered.
Effective delivery of specialist medical services is vital for a private medical insurer, its brokers and clients. Here the issue is to ensure that in the time of need the client can completely rely on the TPA’s knowledge and expertise to deliver the best care available.
Maintaining control
It is essential that a company has clear oversight and overall control of its service delivery. There should be a descriptive and agreed Service Level Agreement (SLA) in place between the company and the TPA, but the type and frequency of reporting must be agreed as well. The format of the TPA’s reporting must also be compatible with the company’s systems. Without this the company will lose its ability to ensure the overall management of premiums and to ensure the best service and medical care is provided.
The company should also establish an effective governance control function which can monitor and audit the TPA and also receive high claims cost referrals. The corporate governance function ensures the company remains in control of it service proposition and, most importantly, its claims.
Broker’s role
TPAs are becoming popular within the international insurance arena and can add considerable value to a provider’s offering. Advisors must be aware of TPA arrangements which insurers have established and make sure that these arrangements are robust and effective as part of their due diligence for clients.
