Third Party Administrators

Insurance industry in India has seen lot of changes since the opening of the sector for private participation. Industry has witnessed entry of a plethora of companies and is to witness many more to foray. There has been a lot of innovation both on the products front and also on service front. Innovation on the service front include providing call centre facilities, providing personalized financial planning tools and the best thing to happen on the service front is introduction of third party administrators.

Third party administrators are the new breed of intermediaries in the sector, introduction of whom will benefit both the insured and the insurer. While the insured is benefited by better service, insurers are benefited by reduction in their administrative costs. But the questions in everybody's mind are - what does a TPA do? Who can be a TPA? What is his source of revenue? How does he benefit the insured? To find answers for all these and many more read on….

Introduction of Third party administrators comes as a succor to the insurance companies which have been searching for ways and means to get their management expenses in line with the specifications laid down by IRDA. Insurers can now outsource their administrative activities, including settlement of claims, to Third party administrators, who offer such services at a cost. It may be noted that TPAs are remunerated by the insurers and so policy holders should welcome such a move since they receive enhanced facilities at no extra cost. Once the policy has been issued, all the records will be passed on to the TPA and all the correspondence of the insured will be with the TPA.

To put in short, the job of the TPA's is to maintain databases of policyholders and issue them identity cards with unique identification numbers and handle all the post policy issues including claim settlements. In terms of infrastructure, the TPA's run a 24-hour toll-free number, which can be accessed from anywhere in the country. And they will have full-time medical practitioners under their employment who will immediately take a decision on whether the ailment is covered under the policy.

TPA license can be granted to any company registered under the companies Act 1956. IRDA, which licenses and regulates these TPAs, has specified stiff entry norms some of which include a minimum capital requirement of 1 Crore, capping the foreign equity at 26% etc. License is usually granted for a period of 3 years. For complete details of TPA regulation issued by IRDA, Please click on the following link:

Third party administrators regulations

Presently TPA licenses are issued to render health services. It is hoped that effectively this will lead to cash less hospitalisation services. In contrast to earlier scenario where the insured is reimbursed all the hospitalisation expenses, in the present scenario TPA would tieup with the hospitals and all the hospitalisation services would be on cash less basis. Below is an overview of the activities of TPA

• All the records of medical insurance policies of an insurer will be transferred to the TPA.

• TPA may issue identity cards to all the policyholders, which they have to show to the hospital authorities before availing any hospitalisation services.

• In case of a claim, policyholder has to inform TPA on 24 hr toll free line provided by the TPA.

• On informing the TPA, policy holder will be directed to a hospital where the TPA has a tied up arrangement. However policyholder will have the option to join any other hospital of his choice, but in such case payment shall be on reimbursement basis.

• TPA issues an authorisation letter to the hospital, for the treatment wherein the TPA will pay for the treatment.

• TPA will be tracking the case of the insured at the hospital and at the point of discharge, all the bills will be sent to TPA.

• TPA makes the payment to the hospital.

• TPA sends all the documents necessary for consideration of claims, along with bills to the insurer.

• Insurer reimburses the TPA.

To offer their services TPAs, after getting license have to forge alliances with insurers. To this extent TPAs have no role to play if they are not empanelled by Insurers. As discussed earlier TPAs will be remunerated by insurers and remuneration shall be fixed on a mutually agreeable terms. However IRDA has laid down a maximum ceiling on the commission that can be given to a TPA, which presently stands at 15% of premium amount. TPAs shall also have to tie-up with hospitals, which offer hospitalisation services. Further each TPA may tie-up with any number of insurers and like wise each insurer can empanel any number of TPAs.

The above relates to roles and activities of a TPA in case of medical insurance policies. However, in the days to come, TPA services may well be extended, but not limited, to the following:

• Documentation and policy issuing.

• Legal services and claims recovery services under subrogation rights.

• Record verification under adjustment policies

• Medical examination services for life insurance policies and overseas mediclaim policies.

• Co-insurance recovery services for both premiums and claims.

• Follow up of recoveries from reinsurance companies.

• Servicing of motor policies

• Inspection and assessment of risk prior to issuance of policy.

• Arbitration services.

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