As a business owner, there are certain tasks that you’re more than willing to handle yourself.Â
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But, when it comes to things like managing your employees’ retirement plans or dealing with insurance claims? Well, those are responsibilities you’d rather get off your plate and delegate to somebody else.Â
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That’s where a third-party administrator comes in.Â
What Is a Third-Party Administrator (TPA)?
A third-party administrator is a business that works under contract to provide administrative services on behalf of another company. They can range in size from small businesses to large companies.
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Third-party administrators will often handle things like claims administration and claims processing, risk management, retirement plan administration, 401ks, or everyday human resources department problems. However, they’re most frequently responsible for handling medical and insurance claims while remaining in compliance with federal regulations.
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Since they act as a third-party between companies and customers, they are known as third-party administrators. However, you might also hear them referred to as an “administrative services only” (ASO) entity.
What Do Third-Party Administrators Do?
Third-party administrators can help with many mundane administrative functions, like claims administration, employee benefits management, and other daily administrative operations.Â
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TPAs most frequently work in the area of insurance claims, acting as claims adjusters on behalf of commercial insurance companies and overseeing the claims process from beginning to end, typically in conjunction with the insurance company’s staff.Â
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A small third-party administrator may only provide services for one type of insurance, like workers’ compensation insurance. These TPAs could handle auditing workers’ compensation policies and minimizing risk through loss prevention.
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Working with a TPA in the insurance industry can help companies expedite claims, evaluate data and analytics, and provide risk management. TPAs may handle general liability claims or take a look at professional liabilities.Â
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While TPAs most commonly focus on insurance and claim processing, they offer other services as well. For example, an investment company may hire a third-party administrator to handle employee benefit plans or to create a plan to recruit skilled workers and encourage the retention of important employees.Â
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Needless to say, there are quite a few services, and the types of programs outsourced to third-party administrators have grown. In fact, 80 percent of large companies fully or partially outsource some of the more complex aspects of employee benefits, including 401ks, COBRA, and flexible spending account administration.
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To put this simply, third-party administrators can handle many types of work, including the following:
Administrative Work
- Customer service and customer enrollment
- Consolidated billing to vendors
- Record keeping
- Workers’ compensation insurance
- Industrial hygiene inspections
- Emergency response plans
- Loss control programs
- Forensic accounting
- Return-to-work programs
- Retirement plans
Healthcare
- Medicaid
- Long- and short-term disability
- Pharmacy benefits management
- ERISA compliance
- Negotiating and planning stop-loss coverage
- Coordinating with health care providers
- Enrolling employees and their dependents in healthcare plans
- Bundling medical benefits with dental, vision, or disability benefits
- Health Reimbursement Arrangements (HRAs)
- COBRA assistance (for employees who qualify due to termination or reduced hours)
Financial
- Loan support
- Audit support
- Monitoring reports and fees
- Preparing annual returns and reports
- Processing flexible spending accounts
- IRS compliance
What Are The Benefits of a Third-Party Administrator (TPA)?
Companies can pick and choose what tasks are outsourced to a third-party administrator, and how many tasks are delegated will depend on what the company can afford. Start-ups and small companies often choose to keep their own services in-house, but midsize or large companies may benefit from handing off specific responsibilities to a third-party administrator.Â
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For instance, if your company is self-insuring a healthcare plan, all of the administration tasks for that health insurance become your responsibility as the employer. The regulations of managing a self-funded healthcare plan can be overwhelming and cause a lot of headaches.Â
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For that reason, working with an outside expert is often a better choice, as it offers the following advantages:Â
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- Saving time: You have enough to worry about as a business owner. Handing off highly technical work to a skilled third party can take tasks off your plate so you can focus elsewhere.
- Handling difficult personnel problems: Human resources departments have to deal with a lot of tough conversations. When employees leave your company, voluntarily or not, difficult emotional issues can follow. Having an impartial third-party involved ensures that employees are treated fairly and can help provide conflict resolution quickly.
- Increasing your peace of mind: You can’t be an expert in everything, and things like insurance claims and retirement plans are complex. When you work with a TPA, you can rest assured that those tasks are being handled by skilled and experienced professionals.
What To Look For When Hiring a TPA
Before signing a contract with a third-party administrator, you should know exactly what services the TPA offers to ensure it’s a match for what you’re looking for. But what other things should you consider? Here’s a quick list of criteria to keep in mind:Â
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- Certification: Every state has its own TPA certification and licensing regulations. While some third-party administrators are large corporations, there are independent contractors who are licensed. For example, Oregon requires any business acting as a TPA to be licensed while South Carolina allows exemptions from licensing requirements.
- Education: Employees working for a TPA are often required to have an education in finance, accounting, or insurance.
- Experience: Make sure that the TPA has experience performing the services you require. For example, if you need them to handle COBRA assistance, confirm that they’ve dealt with COBRA claims in the past. If you need them to manage liability insurance, ask if they’ve filed liability claims.
- References: It’s always a good practice to ask potential partners for references. Contact companies that have worked with the third-party administrator to see what their experience was like.
- Finances: You should also understand what fees and charges third-party administrators include for their services. While there’s an upfront investment involved, it will ideally save you money and time in the long-term.
- Federal and state compliance: One important role of any TPA is complying with city, state, and federal laws. Does the third-party administrator fulfill its legal requirements? Can you trust them to fulfill yours?
- Quality control: Privacy is a concern in any business, but third-party administrators have access to a lot of sensitive data, like medical records and employee files. What steps does the TPA take to secure data? Is there a quality control process in place to make sure claims are handled properly?
- Staff: Find out how many staff members will be assigned to your business. If your assigned adjusters are also juggling other clients, their attention is split. Balancing multiple clients could mean that they will have difficulty handling your claims.
Considering all of these different elements will help you find the third-party administrator that’s the best fit for your business.Â
Do You Have to Have A Third-Party Administrator?
Working with a third-party administrator is by no means required. However, outsourcing some of your administrative work can help you achieve your goals for your business by placing some of these important and oftentimes complex tasks in the hands of experts.
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Business owners have enough to worry about and working with a TPA can provide much-needed peace of mind—plus extra time to grow and run your business.
1. Introducing Yourself
Your introductory email needs to pack a lot of information into a small package. Try something like this:
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Hello Jane,
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My name is John Doe and I work for ABC Agency, where we provide business insurance policies to many of Dallas' rockstar small businesses.
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Congratulations on your new business, Jane's Bakery. Are you wondering if you have all the insurance you need? Or if your policies will really cover you in a pinch?
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At ABC Agency, we pride ourselves on providing robust, comprehensive coverage options to companies like yours with flexible, pay-as-you-go plans.
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Are you available this week to talk more about how we can help? I can help you find the most affordable rates and the best policies out there.
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I look forward to speaking with you soon.
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Cheers,
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John Doe
2. Presenting a Quote
Once you've met with your potential client, a quick reply with their quote will get the ball rolling.
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Hi Jane,
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Thanks so much for meeting with me this morning. I loved touring Jane's Bakery–I can still smell those delicious chocolate chip cookies baking! You have a great location, and I'm sure you're going to do great on Front St.Â
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After reviewing my notes, I've pulled together an insurance quote for you (attached). I recommend a business owner's policy. A BOP includes several insurance products in one: liability, property insurance, and business interruption insurance. It offers robust coverage at a competitive price.
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I'll call you in a few days to see what you think about this insurance plan. In the meantime, if you have any questions, don't hesitate to email me or call me at [phone number].
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Again, thank you for your time today. I look forward to working with you in the future.
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Cheers,
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John Doe
3. Thanks for Purchasing a Policy
Gratitude is important! It's never a bad idea to thank your clients for their business.
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Hi Jane,
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Thank you for choosing a business owner's policy with ABC Agency. We know it's so important to get the right coverage for your business, and we are honoured you've placed your trust in us.
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We're excited to work closely with you, and our no. 1 goal is to make sure you're business is always protected.Â
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Do you have any questions? We are here to help. Reach out whenever something comes to mind.
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Thank you again for choosing ABC Agency to insure Jane's Bakery.
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Cheers,
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John Doe
4. Welcome Email
A welcome email helps clients feel like you're there to help–and can softly pitch other insurance products you offer.
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Dear Jane,
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Welcome to the ABC family! We are thrilled to have you as a new customer and can't wait to meet all of your insurance needs.
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As an independent insurance agency, we work with multiple insurance providers to find the best coverage options for all our customers. If you need any other type of insurance–like [include additional offerings unique to your agency, like life insurance, health insurance, home insurance or anything else]–we can help you too.
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Do you want to discuss any of these policies?
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Cheers,
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John Doe
5. Introducing a New Product
A happy client may want to expand their business with you.
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Hello Jane,
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I hope all is well with you and Jane's Bakery. I stopped in yesterday for a blueberry muffin and coffee, and they were delicious. I loved the hint of cinnamon in the muffin! Was that your idea?
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I wanted you to be the first to know we are now offering commercial vehicle insurance to our policyholders. Auto insurance for your catering vans is super important since your personal car insurance won't cover them.
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We're offering this insurance coverage solely to our current business clients at the moment and have some very competitive rates.
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Would you like me to work up a quote for you?Â
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As always, thanks so much for being a part of the ABC family.
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Cheers,
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John Doe
6. Asking For Referrals
Once your relationship is established and comfortable, let your clients help you grow.
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Hi Jane,
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You've been a valuable member of the ABC family for two years now, and we so appreciate your business–not to mention the muffins you supply for our monthly meetings!
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Because you are a valued policyholder, I wanted to ask a quick favour. I know you are active in the local Chamber of Commerce, and I'm hoping you might know some colleagues who would benefit from working with our insurance company.
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Referrals are one of the most effective ways to connect with our community since people really trust their friends, family and colleagues. Is there anyone you'd recommend I speak with?
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Remember that in addition to business insurance products, we offer everything from life insurance policies to pet insurance.
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As a thank you for your help, we will send you an Amazon gift card of $100 when your referrals buy insurance from us.
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Thanks so much for your help!
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Cheers,
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John Doe
7. Policy RenewalÂ
If your client needs to renew their policy with you, send an email like this:
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Hi Jane,
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I hope you're doing well! What a year it's been—from being listed as one of the top 5 bakeries in Dallas to being an official vendor for the city—you have so much to be proud of.
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Just a heads up that your business owner's policy is up for renewal soon and will expire on June 15, 2023.Â
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If you're still happy with the coverage, we can easily renew it for you.Â
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Do you have some time to chat this week?
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Looking forward to serving you again!
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Cheers,
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John Doe