Aligning Employer, Broker, and Carrier Needs for a Strategic TPA Selection

Many employers choose to outsource their workers’ compensation claims handling to a third-party administrator (TPA) instead of creating their own internal operation. Choosing the right TPA to meet the organization’s needs is critical to their risk management success since TPAs coordinate essential functions like managing loss reserves, facilitating claims investigations, issuing claims payments and settlements, coordinating medical management, and organizing transitional work. When making this decision, it is important for companies to first determine what they are looking for in a TPA by establishing selection criteria and expectations.

“Before creating specific TPA selection criteria, it is important to consider the overall big picture related to wants, needs, and concerns,” said Kelly Becker, Senior TPA Governance Manager at Safety National. “Although the TPA is hired by the employer, the broker and insurance carrier also work closely with the TPA and bring unique perspectives.”

When defining their needs, employers, brokers, and carriers should evaluate these key considerations when choosing a TPA.

The Employer

Employers should begin determining needs based on what is important to their organization. The TPA will, ultimately, become the company’s business partner in risk management. Some concerns to consider are:

• Reputational risks – The organization could be in jeopardy if a claim is mishandled by their TPA.
• Exposure – Workers’ compensation is often a company’s largest exposure. Will the TPA provide timely and appropriate benefits and follow the law while doing so?
• Financial impact – How will the TPA impact the company’s bottom line, and do they offer value-added services to help reduce claims costs?

The Broker

Brokers are often judged by their ability to manage total risk for a client and frequently take an advisory role, making them an extension of their client’s risk management team. It is the broker’s job to position their client for competitive renewals, which is largely based on claims frequency and costs. From this perspective, the TPA can play a large role in the broker’s ability to assist clients. A major concern for the broker is if a TPA can reduce their clients’ total cost of risk (TCOR) so that the broker can paint a better loss picture for their client.

The Carrier

Since TPAs have a large hand in managing claims for employers, the carrier’s core consideration is whether the TPA has the infrastructure in place in three key areas: systems, resources, and personnel. The TPA must be able to meet the carrier’s requirements specified in their service agreement. The carrier’s key concerns can include:

• Jeopardizing underwriting authority – Inappropriate claims handling by a TPA can affect the carrier’s ability to do future business in certain states.
• Fines, penalties, consumer complaints, bad faith litigation – If a TPA handles claims on the carrier’s behalf, the carrier may be held accountable if anything goes wrong.
• Reporting capabilities – Carriers are required by the state in which the policy was written to provide data about the workers’ compensation policies that they issue. It is important that the TPA has the systems in place to capture and transmit the required data so that the carrier can fulfill this mandatory requirement.