TPAs Offer Specialized Solutions
By: Justin Bates
During the past several years, the Canadian insurance industry has experienced mergers and acquisitions resulting in a major consolidation of the carriers. Together with the demutualization of companies, there is a greater emphasis on shareholder profit with the remaining carriers focused on certain markets, while withdrawing from others.
Market contraction limits the number of choices for clients and benefit consultants leading to higher costs with less flexibility. Fewer options collides with customers that are demanding more flexibility, a reduction in the trend of exponential rising benefit costs, and better delivery of services. In many instances, corporations are reducing the number of staff in their human resource and benefits departments, thus demanding more paperless solutions to benefits administration.
This paradox puts employee benefit consultants in a delicate position as they try to balance the needs of clients in a shifting market. The industry is currently undergoing a transformation contributing to the growth of middle-tier and special risk carriers who have seized the opportunity of a market dominated by the big three insurers. As with many market cycles, the larger a small group of companies becomes, the more opportunity arises for companies specialized in niche areas. We are in the early stages of a new cycle born from existing needs to deliver innovative and cost-effective solutions to clients. This can be seen by the spread of new plan designs and product types that have expanded the ability to customize unique packages for employers.
Specialty insurers deliver superior products for less cost, but the extra administrative burden of dealing with multiple carriers can be overwhelming for the client.
Rise Of TPAs
One segment that has enjoyed success is third-party administrators (TPAs). The rise of TPAs as enablers of design, implementation, and administration of group benefit plans has created alternatives to the larger insurance companies who are struggling to keep up with the advances in technology as they attempt to integrate legacy systems. The more advanced TPAs utilize webbased software solutions offering clients real-time systems that just a few years ago would cost millions of dollars to build.
This growth recently resulted in the creation of the Third Party Administration Association of Canada (TPAAC). TPAAC’s mandate is to become “a common voice to the insurance industry and the various provincial and federal government regulatory bodies creating a financially strong third-party administration industry and to establish certain guidelines and uniform standards required to preserve the integrity of the industry and to protect consumers1.”
Recognizing the changing tides, many TPAs heavily invested in software to offer value-added services. Moreover, in order to curb the rising costs of traditional plans, TPAs have enabled benefit consultants to be creative in designing plans for their clients that reduce overall costs, while eliminating administrative work. Some examples are selfinsured plans with health spending accounts and flex credits. Software systems now accommodate traditional premium-based plans in addition to the various other plan designs.
Today, the role of a benefit consultant requires a change in the way clients are served. Benefit consultants can now recommend multiple specialty carriers that offer unique plan design, eliminate multiple bills, and take away multiple carrier service channels. In the past, this created huge deficiencies and limited options. To address these challenges, benefit consultants need to diversify services by taking more control of the administration and billing functions. Benefit consultants will increase customer retention and revenue streams by offering the convenience of single billing, web-based self-administration, one point of data entry, and a host of critical flexible plan design options.
Specialty Carrier Products
As a result, benefit consultants will be in a better position to shop for specialty carrier products with competitive pricing and their capacity for bulk buying will be greatly increased along with the TPA’s other customers. Among the constant threats benefit consultants face each year is the ongoing fear of direct solicitation to existing and potential clients. This is harder to achieve if the relationship with the client is a multi-tiered service arrangement geared toward customization and lowering the overall costs of the program with a onestop solution integrated with HRIS systems, payroll, and benefits administration. The deciding factors in the future success of the evolving benefit consultant will most likely be the choice of partners for technology and TPA. Benefit consultants should be seeking collaborative partnerships with TPAs who have stable technology partners supporting scalable systems and infrastructure built with sound technology that will deliver the type of customization required to address clients’ needs.
For the average benefit consultant operation, introducing new software to manage these types of services is not easy. The costs of developing and supporting software are restrictive and beyond the reach of most small-to-mid benefit consultants. Software can be a distracting force shifting focus away from core competency. Typically organizations endeavoring down the path of software development underestimate the costs and time-to-market of various components of the development cycle, testing period to production ready system, and infrastructure costs. Alternatively, software is costly to license and requires resources to maintain. ASP (application service provider) models have become popular because of the relatively low cost of entry barriers. ASP is based on a third party hosting centre for software solutions with a transaction-based revenue model as opposed to upfront license fees. For these reasons, benefits outsourcing is beginning to gain significant momentum. The outsourcing benefits administration model is an open door for group benefit consultants of any size and costs are scaled to the size of the block.
Best Of Both Worlds
With outsourcing benefits administration, benefit consultants can have their cake and eat it too without the worry of building and maintaining software. Outsourcing to a TPA brings together the best of both worlds: proven technology in a working model with the expertise of dedicated staff who understand the business. In this demanding market, it is about choices and having the ability to offer several options in a seamless and easy-to-understand environment. Benefits are becoming complex and software can be an effective tool to simplify the delivery and explanation of services.
Software has become one of the mechanisms driving change from a group administration perspective. In recent years, web-based technology has provided automation and efficiencies bringing together islands of information. Providing real-time data right from the call centre is critical in today’s high tempo business environment. In some cases, creating sense out of the different systems and managing plan members’ needs is a task in itself. Benefit consultants are saddled with various carrier systems reconciling cumbersome invoices, data integrity, and plan details with limited access to the systems that house all the data. This is where TPAs can play a huge role for benefit consultants by consolidating all data into a central system making it easy to switch plan sponsors, integrate invoicing, and reduce data errors. With increased flexibility of administration and billing, benefit consultants can offer clients better service options with a consistent system not married to a particular carrier.
Distinct advantages exist where benefit consultants have the option of white labeling services provided by a TPA. At the fingertips of the benefit consultant is the power of brand awareness and control over the client’s service from all touch points. One of the most influential portions of a relationship with a client is providing administration and billing services. Plan administrators and HR staff wield authority with decision-makers when it comes time to choose a benefit consultant and keeping this group happy with easy-to-use solutions will go a long way to customer retention. Outsourcing to an established TPA in a white label scenario will result in higher customer retention with the ability to grow beyond traditional boundaries. Enhancing broker-client relationships should be the number one goal of benefit consultants. Evolving to encompass an integrated service delivery approach through outsourcing benefits administration to a TPA is one step closer to achieving this goal and can often be accomplished by adding more value to ultimately reduce the client’s overall costs.
Justin Bates is president of iBace Consulting.
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