2009 Annual Meeting ● Assemblée annuelle 2009Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse)

2009 Annual Meeting ● Assemblée annuelle 2009Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse)

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Agenda• History of TPAs • Makeup of the various types of TPAs, ownership and market

focus• Administration relationships

• Insurers• Clients

• Market relationships • with insurers• Advisors/Consultants

• Market share and business development• Advantages and perceived disadvantages of TPAs• Regulatory oversight• TPAAC and its role in the current environment• What does the future hold?• Questions and discussion

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

History of TPAs • Formed to meet administrative challenges of

multi-employer groups• Trustee plans

• Hour banks• Pension arrangements• Focused consulting

• Associations• Professional groups• Trade associations• Unassociated multi-employer arrangements

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

• Billing consolidation when multiple insurers involved

• Single employer administration• Insured and self-funded arrangements• Third Party Payer (TPP) and/or Administrator

(TPA)• MGAs or MGUs

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

What do we mean by Administration?• TPP and TPA

• Data gathering and management

• Eligibility verification

• Premium billing and remittance

• Employee queries

• Document production

• TPP• Claims adjudication

• Claims payment

• Claims reporting

Will use TPA for both types of administrators.

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Ownership and Market Focus• Union Ownership

• Focused on Trustee plans• i.e. PBAS owned by UFCW• Developed Hour bank systems• Manage Group and Pension administration and

investment arrangements• Internal Consulting• Actuarial valuations for Pension as well self-

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

• Privately Owned/Consultant Driven• Trustee Groups• Associations

• Trade• Professional• Industry

• Large single employers

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

• Privately Owned No Consulting• Premium Billers or consolidators, claims payment• Multi-employer unassociated businesses

• i.e. Chamber of Commerce, Board of Trade• Better Business Bureau• Independent Federation of Business

• Single employers• Individual Products

• Privately Owned Broker• Premium Billers or consolidators• Single employers• Some claims payment

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

• Publicly Traded Consulting Firms• i.e. Morneau Sobeco, Mercer, etc.• Premium Billing, some Claims Paying• Flex and other Benefit Administration

• Large Single Employers• Large Industry Associations

• Public/Employee Association Organizations• i.e. SAHO, MTS (Teachers) OTIP etc.• Premium Billing, Claims Paying• Disability Management• Actuarial Valuations either internally or through

external consultants

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Administration RelationshipsInsurers

• Out Sourcing for Insurers• Collect premium on behalf of insurers• Produce booklets, certificates of insurance• Administer employee adds, deletions etc.• Claims paying

• Follow insurer guidelines, open to annual or more frequent audits

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Clients• May have relationship as Consultant/TPA• Represent client needs to insurer• Also acts on clients behalf as TPA• If appointed by independent consultant will

follow direction of client/insurer/consultant• In self-funded arrangements act on behalf of

client• Holds reserves or funds on deposit• Administers employee adds, deletions etc.• Pays claims

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Market Relationships Insurers

• Partners• Insured products

• Life, LTD, AD&D, Optional Life, CI etc.• Stop loss and out of country pools• Insured Health and ASO

• Competitors• Self-funded plans• Wellness programs• Provide same non-insured products such as Best

Doctors, EAPs etc. through other providers

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Advisors/Consultants• Partners

• Captive advisors tied by contract• Selected advisors in market• Open market

• Competitors• Act as consultants• May take ownership of plans for Tied Advisors• Seek business through captive agents in

opposition to incumbent advisors

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Market Share and Business Development

• Group and Individual Benefits• Estimated Insured and Self-funded Benefits

• In excess of $4 Billion• Self-funded Health, LTD, Trustee

arrangements

• Pension Funds under Administration• Unknown but includes Trustee plans, large single

employer Defined Benefit administration• Money Purchase administration• Investment services

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Advantages and Perceived Disadvantages of TPAs

Advantages• Systems designed to administer difficult

Multi-employer arrangements• Focused personalized administration• Self-funded Health, LTD, Trustee arrangements• Consolidation of multiple insurer arrangements• Lower Cost environment

• Pension Funds under Administration• Trustee plans, large single employer • Defined Benefit and Money Purchase

administration and Investment services

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Perceived Disadvantages• Not as efficient or competent as insurers

• Process claims do not adjudicate• Not technically developed• Personnel not trained well

• Unregulated and therefore nor properly overseen

• Unfair competition, not subject to same capital and financial requirements as insurers

• A number of companies with questionable practices

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Answers to Perceived Disadvantages• Competence, training and system development

vary by TPA but in most are well developed• Most TPAs train their personnel to a high standard

or hire already trained employees• Main business is administration, proper claims

adjudication is critical (most adhere to this)• Old Superintendents Regulations are adhered to

as are CCIR rules by most• TPAs do not assume risk and therefore capital and

financial obligations insurers are subject to are not required by TPAs. Any risk in TPAs portfolio is assumed by insurers. Adhered to by most.

• What about those that are not included with “most”

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Regulatory Oversight• TPAs are the largest unregulated Area in

the Financial Services Sector!?• There is no legislation or proposed legislation or

regulation to govern TPAs• Risk Based Market Regulation will have an impact

on both TPAs and insurers that outsource to them• OSFI Risk based rules require insurers to ensure

that TPAs they work with follow best practices and a code of conduct

• The unregulated environment and those TPAs not following Best Practices prompted the formation of the Third Party Administrators’ Association of Canada (TPAAC)

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

TPAAC and Its Role in The Current Environment

Formed in 2003 by 9 diverse TPAs

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Why Form TPAAC? • Met with regulators and TPAs to discuss specific

concerns• Unregulated industry• Not all TPAs follow best practices (those not

considered part of “most”)• Little market or industry input• Little relationship between TPAs in what is a

large insurance market sector• No common body to meet challenges and

opportunities

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Process of Forming TPAAC• Met with regulators and TPAs to outline initial

approach to meeting concerns• Formed basis for Association and presented vision

to Regulators, TPAs and other industry participants

• Made a final verbal and written presentation to CCIR

• Formally set up TPAAC• Met with CLHIA to outline TPAAC’s direction• Started process of moving toward one common

set of Best Practices and Code of Conduct for TPAs in Canada

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

TPAAC Mission

“To create a financially strong Third Party Administration industry and to establish certain guidelines and uniform standards required to preserve the integrity of our industry and to protect our consumers." 

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

What does TPAAC Offer • Code of Conduct• Best Practices• Industry education and information sharing• Liaison and joint proposals with other Industry

participants• Stakeholder with CCIR• Set high ongoing standards for Association

members• Adding new vision to changing insurance industry

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

Requirements for Membership• Application for Membership

• E&O and Bond coverage• No Co-mingling of funds held – proper use of

Trusts• Comprehensive Disaster Recovery Program• Established procedures and training• Good business practices

• Audit by KPMG of• Key factors in TPA operation• Ensure all requirements of membership are met• If not meeting criteria, KPMG indicates what needs

to be done for TPA to be able to join

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Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

What Does the Future HoldThird Party Administrators are a large and

increasingly important part of the market• Still a great need for increased participation in

TPAAC to ensure Best Practices are being met by TPAs in the market

• Increasing partnerships with Insurers• Increasing work with top Advisors• Growth in self-funding of health and dental • Work closely with regulators, the CLHIA and other

industry stakeholders• Will become stronger contributors to the future of

the insurance industry

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Thank you

Questions

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