Intricate and multifaceted, the insurance industry is increasingly benefiting from specialized support entities, such as third-party administrators (TPAs), to manage various operational aspects — helping insurance carriers streamline operations, reduce administrative burdens, and increase scalability in an evolving regulatory and technological environment.
According to Straits Research, the global insurance TPA market was valued at $432.44 billion in 2024 and is projected to reach $886.31 billion by 2033, reflecting a robust compound annual growth rate (CAGR) of 8.3% over the forecast period.
As TPAs continue to gain traction as partners for insurers, it’s important to understand what they are, how they operate and why they play such a pivotal role in insurance ecosystems now and in the future.
What Is a Third-party Administrator (TPA) in Insurance?
A TPA is an independent organization that provides specialized services to insurance companies and self-insured entities. They have become indispensable partners by helping their clients manage daily administrative operations for insurance plans or specific products and processes.
Outsourcing functions to these third-party administrators allows insurance companies to focus on their core competencies, such as underwriting and risk management, while ensuring that other operational elements are efficiently handled.
If TPAs are part of your evolving organization, it is imperative to adopt a robust and successful oversight program, which requires ongoing monitoring and attention from multiple functions. Insurance companies must work to build strong relationships with their TPA partners and cultivate an environment of transparency while striving to produce efficient and timely results.
How Do Third-party Insurance Administrators Work?
When insurers outsource administrative functions to TPAs, they shift day-to-day operational duties to an external partner rather than managing them internally. Typically, this outsourcing arrangement is formalized through a service agreement or contract that outlines the TPA’s scope of work, performance expectations, reporting obligations and regulatory requirements.
While TPAs may be managing key processes, insurers are still ultimately responsible for the services they perform and for ensuring their TPAs adhere to corporate policies and state and federal guidelines.
If TPAs are part of your evolving organization, or you are considering partnering with one, it is imperative to adopt a robust third-party risk management program, which requires ongoing oversight, monitoring and controls from multiple functions. Insurance companies must work to build strong relationships with their TPA partners and cultivate a transparent environment that produces timely results and consistent service quality, while meeting regulatory requirements.
Typical Functions of Third-party Administrators in the Insurance Industry
TPAs have become indispensable partners for insurance entities by lessening some of the entity’s administrative burden and managing select operations.
Claims Management
TPAs act as intermediaries between the insurer and the insured by reporting, logging and tracking claim information, assessing claimant damages, verifying documentation, evaluating losses, gathering supporting evidence, determining coverage, setting case reserves and facilitating payment disbursement, among other processes.
TPAs often utilize their own claims systems or integrate or co-source claims entry and tracking with insurance entities, applying established guidelines where applicable, to ensure claims are handled fairly and promptly, absorb variances in resources needs, and expedite the claims reporting and payment process, contributing to accurate operations, regulatory compliance and customer satisfaction.
Customer Service
TPAs can manage policyholder inquiries, provide information on coverage and benefits, and address grievances to help maintain policyholder satisfaction and loyalty.
Risk Assessment and Fraud Detection
By leveraging advanced data analytics and technology, TPAs can assist insurers in evaluating risk profiles and identifying potentially fraudulent activities to help reduce financial losses and maintain insurance portfolio integrity.
Regulatory Compliance
TPAs help insurance companies stay compliant with state and federal regulations, thereby avoiding legal pitfalls and ensuring smooth operations, by preparing and administering premium tax returns, performing payroll audits for premium adjustments, performing routine OFAC screenings, and outsourcing state agency and insurance licensing programs and tracking, among other tasks.
Cost Management
By optimizing processes and employing economies of scale, TPAs can reduce administrative costs for insurers, leading to increased financial performance.
Eligibility and Underwriting Services
TPAs can streamline and manage the upfront evaluation to determine whether applicants qualify for coverage. This may include gathering enrollment data, reviewing required documentation and applying the insurer’s underwriting guidelines.
Enrolling Customers and Issuing Policies
TPAs can process enrollment information and create new member records. They can generate policy documents, distribute plan materials and ensure customers are onboarded to help insurers accurately scale enrollment operations.
Collecting Premiums
TPAs can manage premium collection operations, including billing, payment tracking and account reconciliations. They ensure funds are collected on schedule and processed in accordance with the insurer’s requirements.
Accounting and Reporting Services
TPAs frequently support insurers with routine financial and operational reporting, which may involve preparing activity summaries, providing claims and premium data and generating compliance‑related reports. Their work helps insurers maintain transparency, fulfill regulatory obligations and make informed business decisions.
Key Considerations When Employing Insurance TPAs
If you are considering employing a TPA or already have relationships in place, consider the following elements to ensure that they are meeting your business’s operational and regulatory needs.
Operational Oversight
Insurers should establish clear performance metrics to ensure that TPAs meet the expected service quality. Review how service level standards are monitored, how oversight and internal controls are managed, how trust is established in daily operations, and the information available to monitor TPA performance.
Risk Exposure and Mitigation
Given the sensitive nature of insurance data, insurers should assess if they recognize potential TPA risk exposures and how they would manage them over time. TPAs must have robust cybersecurity measures in place to protect against breaches and unauthorized access, as well as to hire (background checks), retain and reassign specific resources to each insurer while maintaining quality and consistency of processing.
Financial Reporting
Monitor the financial strength of your TPA, how they cultivate transparency in the relationship and how their systems are structured and monitored. Additionally, consider how a TPA’s technology stack integrates with your information management system is essential to maintain data accuracy.
Regulatory Compliance
Conduct regular audits to validate activity and ensure that your TPA is meeting regulatory and state compliance requirements. Regulatory frameworks, including the National Association of Insurance Commissioners (NAIC) Insurance Data Security Model Law (#668), the New York Department of Financial Services (NYDFS) Regulation (Part 500), and other state-level requirements all demand proactive risk management.
Reliability of Information
Consider how a TPA’s services impact your financials and reporting accuracy, as well as what controls are in place to ensure their information is reliable. TPAs should obtain and share an annual SOC 1 report from an independent certified public accountant (CPA) firm that attests to the design and operating effectiveness of controls. This report will assure clients of the reliability of services and information provided by the TPA.
Information Security
Determine how your critical data and information is maintained and secured against unauthorized access, use and reproduction. This will include identifying the reliability of the information and security programs the TPA uses to protect your data and the data of your insureds. You will want to know if your data is maintained “on-shore,” properly secured with required notifications provided if stored, or accessed “off-shore.”
TPAs should obtain and share a related SOC 1 and SOC 2 Type 2 report annually from an independent CPA firm that attests to the operating effectiveness of the TPA’s ability to safeguard sensitive information.
Benefits of Partnering With a TPA in Insurance
Hiring a TPA and outsourcing business functions can offer several advantages for insurance companies, including:
Scalability and Flexibility
TPAs provide scalable solutions that can be tailored to the specific needs of an insurance company. This flexibility allows insurers to adapt to market changes without overhauling their internal operations.
Access to Expertise and Technology
TPAs bring specialized knowledge and cutting-edge technology. Their expertise in claims management, customer service and regulatory compliance can significantly enhance operational efficiency and service quality.
Enhanced Focus on Core Business
By outsourcing administrative functions to TPAs, insurance companies free up internal resources to concentrate on their primary business activities, such as product development, assessing and managing risk, and driving growth and innovation.
Real-world TPA Benefit Case Examples
- Price Gouging Identification: A TPA stopped a provider from price gouging a specific drug by transitioning to a different TPA and steering the procurement through a more cost-effective pharmacy.
- Cost Reduction: A TPA working with a pharmacy benefits organization kept its pharmacy trend flat and decreased drug costs through a tailored, data-centric strategy.
- Tech Automation: A TPA saved 40 hours per week by automating Centers for Medicare & Medicaid Services audit workflows, improving accuracy and reducing risk. Another TPA increased automated claim adjudication by 67%, reducing claim payment times by nearly 70% and increasing accuracy from approximately 50% – 60% to 97%.
Insurance Third-party Administrators: Frequently Asked Questions
Like a TPA, an Administrative Services Only (ASO) provider can offer a health insurance company outsourced operational functions, but there a few differences between the two. An ASO is typically part of a larger insurance company while a TPA is an independent organization. ASOs also focus on standard services for a fixed fee while TPAs provide more customizable offerings, flexible pricing and collaborate more closely with their clients.
It depends on the state, but most TPAs will need to be licensed or comply with other regulations in order to do business. Currently, 46 states have a licensing process in place for insurance third-party administrators.
There are many reasons to hire a third-party administrator. They can provide a wide range of administrative tasks and help free up staff to focus on more specialized activities. Typically, TPAs are most used by companies with self-funded health plans, businesses with complex employee benefits plans and organizations with limited HR resources.
How Cherry Bekaert Can Help
By leveraging the resources of TPAs, insurance companies can navigate the complexities of the industry and regulatory environment with greater agility and focus. Our Insurance and Risk Advisory teams join forces to provide comprehensive audit, tax and advisory services to all insurance entities, including TPA oversight and vendor management program assessments, with the intent to fully understand your business and assess your TPA program.
Our team of experienced professionals provides practical solutions that allow you to optimize the benefits of utilizing TPAs, while demonstrating the overall conceptual soundness to management and regulators alike.
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