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What is Third Party Administrator Insurance?

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  • Written By: Amy Hunter
  • Edited By: Andrew Jones
  • Last Modified Date: 06 September 2016
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Third party administrator insurance is insurance that has been outsourced to an outside company. Although any company or organization can use a third party organization to handle claims, they are most often used by companies that are self-insured. The third party insurance organization does not carry any insurance risk, they simply handle paperwork.

A third party administrator insurance company may handle claims processing, collection of premiums, manage workers' compensation, and disability programs. Others will also administer retirement and saving plans for employees. Some companies hire a third party administrator insurance organization to handle all of their administrative needs, while others choose to outsource only part of the program. The technical nature of employee insurance and benefit plans makes outsourcing a cost-effective choice for many companies.

When choosing a third party administrator insurance program, it is important that the company be licensed to perform work in the state where the client is based. This information is available through the state's Secretary of State office. The National Association of Third Party Claims Administrators is also a good source of information for someone shopping for a third party organization.

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In addition to confirming that the company is licensed to work in the state, a prospective client should consider who the main customers of the third party administrators are. Some third party administrator insurance companies specialize in large businesses, while others focus on small business, nonprofits, or companies that employ organized labor. It is best to confine the search process to companies that specialize in your field.

Another point to consider are the types of products offered by the third party administrator. Many offer an unbundled, or cafeteria, plan which allows businesses to choose what services they want to offer to their employees. If the company wants the third party administrator to provide retirement planning, the administrator should submit a proposal detailing the different types of plans that would be appropriate for the company, and explain all of the details, both positive and negative, to each plan.

The final decision a company must make when using a third party administrator organization is how much control they are willing to hand over to the insurance company. Some business owners do not want to be involved in any aspect of insurance and retirement planning, beyond offering it to their employees. Others want more control. Third party administrator plans are generally flexible in this area, but it is important that both the company, and the insurance administrator, are on the same page before signing what will likely be a long term contract.

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