What is 'Third-Party Claims Administrator'

A third-party claims administrator processes claims for a third-party company. Insurance companies and employee benefit providers often employ third-party administrators to process their claims. These administrators also often help to process employee retirement plans and flexible spending accounts.

BREAKING DOWN 'Third-Party Claims Administrator'

Third-party claims administrators are used most commonly by health and commercial liability insurance providers.

On the health insurance side, third-party claims administrators are normally contracted by health insurers or self-insuring companies to administer services, including claims administration, premium collection, enrollment and other administrative activities. In addition, a hospital or provider organization desiring to set up its own health plan will often outsource certain responsibilities to a third-party administrator. For example, an employer may choose to help finance the health care costs of its employees by contracting with a third-party claims administrator to administer many aspects of a self-funded health care plan.

Third-Party Claims Administrators and Commercial Liability Insurance

In the context of commercial liability insurance providers, third-party claims administrators act much like claims adjusters for the insurance company and sometimes works in conjunction with the insurance company's internal claims adjuster, outside claims investigator or defense counsel. In some situations, a third-party claims administrator will choose defense counsel. Usually, the larger the self-insured retention (SIR), the more responsibility the TPA has over the control of the way the claim is handled and ultimately resolved. A SIR is works much like a deductible, but rather than being paid at the end of a claim, when a loss payment is made to a claimant, the money is paid up front by the insured for costs, expenses and attorney fees as the claim moves forward. Some SIRS are in the millions of dollars and the third-party claims administrators that handle their claims are large multinational non-insurance entities. In contrast, some self-insureds choose not to outsource claims administration, preferring instead to handle all claims in house. This is known as self-administration.

Third-Party Claims Administrators and Retirement Plans

Third-party claims administrators sometimes also manage retirement plans, such as a 401(k). Such third-party administrators are often partially managed by an investment company. However, instead of handling all the plan contributions by employees, distributions to employees, and other aspects of plan processing, the investment company may rely on the third-party administrator to handle the associated administrative work and while the investment company handles investment management.

Third-Party Claims Administrators and Life Insurance

Life insurance carriers generally process their own claims. Many investment firms that manage retirement plan assets also outsource this service in order to better focus on investment management.

RELATED TERMS
  1. Third-Party Insurance

    Third-party insurance is a policy designed to protect against ...
  2. Third-Party Technique

    The third-party technique is a marketing strategy used by public ...
  3. Claims Reserve

    The claims reserve is funds that are set aside for the future ...
  4. Third-Party Mortgage Originator

    A third-party mortgage originator is any third-party that works ...
  5. Associate In Claims (AIC)

    An Associate in Claims is a professional designation for professionals ...
  6. Loss Cost

    Loss cost is the amount of money an insurer must pay to cover ...
Related Articles
  1. Insurance

    Will Filing An Insurance Claim Raise Your Rates?

    An accident can mean higher insurance costs, even if it wasn't your fault. Learn more from whether it is beneficial for you to file an insurance claim for not.
  2. Tech

    How Betterment Eliminated Third-Party Admins to Cut Costs

    Once Betterment decided to offer 401(k) plans, the robo-advisor decided to use one of its strongest asset – algorithms – to make its offerings more affordable.
  3. Insurance

    How Are Home Insurance Rates Determined?

    You home's value is one of the driving forces behind your home insurance premium and the amount of coverage you receive.
  4. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  5. Insurance

    How To Easily Understand Your Insurance Contract

    Understanding your insurance contracts can go a long way in making sure that your advisor's recommendations are on track. Learn how to read yours today.
  6. Insurance

    Homeowner's Insurance Guide: A Beginner's Overview

    Everything new homeowners need to know about homeowner's insurance to protect their residence.
  7. Insurance

    What is Insurance Fraud?

    Fraud exists in every type of insurance, although the stakes tend to be highest with life insurance.
  8. Investing

    5 Basic Methods for Risk Management

    The basic methods for risk management can apply to all facets of an individual's life, especially health, and can pay off in the long run.
  9. Insurance

    Investing In Health Insurance Companies

    Health insurance companies work a little differently than most companies. Here's what you need to know as an investor.
RELATED FAQS
  1. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
Trading Center