Insurance Third Party Administration Market

Market Overview

The global insurance third party administration market size was valued at USD 399.3 billion in 2023 and is projected to reach  USD 756.2 billion by 2032, registering a CAGR of 8.3% during the forecast period (2024-2032). The growing healthcare industry and escalating natural disasters caused by global warming are predicted to contribute to the Insurance Third Party Administration Market share.

A third-party administrator or TPA is a business that handles administrative tasks for a health plan, such as billing, plan design, and claim processing. Today, TPAs have gained impetus in various companies, and their scope of responsibilities is growing. TPAs comprise a variety of duties in the health insurance industry, commercial liability insurance, and investment firm operations. In addition, market firms have decided to enter into new areas such as forensic accounting, worker's compensation audits, and emergency response planning.

The use of third-party administrators in the health insurance industry and the increased requirement for operational efficiency and transparency in the insurance business are driving the expansion of the insurance third-party administrator market. However, security and privacy concerns and a need for more understanding and awareness of insurance third-party administrator services limit the market's growth potential. In contrast, technological advances in third-party administrator services are expected to give several prospects for expanding the insurance third-party administrator market throughout the forecast period.

Highlights

• Health Plan Administrators generate the highest revenue share by type.
• Claims Management dominates the market by service.
• Healthcare is the major end-user of the market.

Market Dynamics

Global Insurance Third Party Administration Market Drivers:

Increasing Complexity of Insurance Claims

The growing complexity of insurance claims is a significant driver of the worldwide insurance third-party administration (TPA) market. As insurance policies become increasingly sophisticated and suited to specific needs, handling and processing claims becomes more complex. TPAs provide the expertise and specialized services required to manage these complicated claims successfully.

According to the Centers for Medicare & Medicaid Services, NHE increased by 4.1% to USD 4.5 trillion in 2022, or USD 13,493 per person, accounting for 17.3% of GDP. Furthermore, Medicare spending increased by 5.9% to USD 944.3 billion in 2022, accounting for 21% of total NHE. Medicaid spending climbed 9.6% to USD 805.7 billion in 2022, accounting for 18% of total NHE. This increase reflects the growing complexity of health insurance claims, demanding enhanced claims administration capabilities.

Furthermore, natural disasters such as hurricanes, earthquakes, and wildfires generate many complex claims. Each claim can have numerous components, such as property damage, business interruption, and personal harm, necessitating extensive examinations and collaborative efforts to resolve. Natural catastrophes caused around USD  250 billion in global damages in 2023 (USD  250 billion the previous year), with insured losses of USD  95 billion (USD  125 billion the year before). Overall losses were consistent with the five-year average. However, insured losses were slightly lower than the usual USD  105 billion, highlighting the scope and complexity of claims that needed to be processed.

As a result, TPAs provide the particular experience required to manage these difficulties, ensuring that claims are processed efficiently and accurately. This tendency is reinforced by data demonstrating the increasing complexity and volume of insurance claims in numerous sectors. TPAs can help insurers manage complex claims, improve customer happiness, and maintain regulatory compliance.

Global Insurance Third Party Administration Market Restraints:

Data Privacy and Security

Modern technology is an important feature of third-party administration (TPA) in the insurance sector. While this reliance has significant advantages regarding efficiency, accuracy, and scalability, it also offers weaknesses and obstacles that can affect TPA operations and growth. TPAs rely on advanced technology infrastructure to handle massive amounts of data, automate claims processing, and provide customer support. Any disruption in this infrastructure might result in significant operating delays and critical data loss.

According to IBM, the global average data breach cost in 2023 was USD 4.45 million, representing a 15% increase in three years. TPAs are no different. TPAs are accountable for various participant data, including names and social security numbers; a DIA breach in cybersecurity can easily wipe out a member's whole balance. Also, the Insurance Information Bureau of India (IIB) has been hacked, and some of its data may have been compromised, according to two persons familiar with the situation. IIB collects transaction data from insurers across multiple lines of business. This incident revealed TPAs' vulnerability to cyberattacks and data breaches' severe financial and reputational ramifications.

However, the privacy regulator warns that a leak in health insurance data may harm nearly half of France's population by 2024. According to France's privacy watchdog, a hack exposed data on more than 33 million people, or roughly half of the country's population, at the end of January. The Commission Nationale Informatique et Libertés (CNIL) stated that health insurance firms were directly responsible for informing affected persons — but people should be wary of potential phishing attempts designed to trick them.

Furthermore, suppose the corporations are found to have failed to implement the cybersecurity protections required by the EU's GDPR (General Data Protection Regulations). In that case, they may face a fine of up to €20 million or 4% of their global sales, whichever is greater.

Global Insurance Third Party Administration Market Opportunity:

Technological Advancement

Technological innovations are important in determining the future of the insurance third-party administration (TPA) industry. By incorporating cutting-edge technologies, TPAs can streamline operations, increase efficiency, and provide better services to insurers and consumers. Predictive analytics algorithms can examine past claims data to find patterns, trends, and risk factors, allowing TPAs to make more educated decisions and better allocate resources. Crawford & Company, a major TPA, uses predictive analytics to forecast claim numbers, analyze claim severity, and deploy resources appropriately. Crawford increases claims management efficiency and lowers operational expenses by applying data-driven insights.

Furthermore, blockchain technology provides a safe and transparent platform for storing sensitive insurance data, lowering the risk of data breaches and increasing stakeholder trust. B3i was founded in October 2016 as a market effort (more specifically, a consortium) to create use cases for blockchain technologies in the insurance industry. At the time, blockchain was the most talked-about technology in the financial sector. It is logical that insurance companies take note of the trend and consider its influence on their operations. Following the debut of b3i, France Assureurs launched research into blockchain technology.

Regional Analysis

North America Dominates the Global Market

North America is the most significant global insurance third party administration market shareholder and is estimated to grow at a CAGR of 8.2% over the forecast period. The demand in North America is primarily driven by the high demand for TPAs in the United States. The third-party administrator market in the U.S. is both concentrated and fragmented. Low revenue volatility is the primary factor driving the demand for a third-party administrator. People in the U.S. have witnessed higher disposable income, which allows them to purchase automobiles, homes, and other assets that necessitate insurance. On the other hand, increased competition due to many players' presence negatively affects the market.

Furthermore, increased per capita disposable income enables individuals and households to improve coverage by paying higher premiums for life, health, property, and casualty insurance. Again, the COVID-19 pandemic has positively impacted the insurance industry in the United States. Insurance companies are investing in third-party administrator services as claims increase. According to IBIS World, In 2023, the market size for Third-Party Administrators & Insurance Claims Adjusters increased by 2.4%.

Additionally, according to McKinsey & Company, there is an increasing worldwide burden of chronic disease, with cardiovascular disease, cancer, diabetes, and respiratory disorders accounting for 79% of all fatalities by 2020. Projections indicate that by 2030, this number could rise to 84%, highlighting the growing effect of chronic diseases on global health outcomes. During 2023, the United States saw 376 weather and climate disasters, with total damage costs approaching or exceeding USD 1 billion. The total cost of these 376 occurrences exceeds USD 2.660 trillion. As a result, the increase in insurance claims caused by catastrophic calamities drives the market expansion of insurance TPAs.

Asia-Pacific is anticipated to exhibit a CAGR of 8.6% over the forecast period. China holds the largest share, while India is expected to grow at the fastest CAGR. The region has enormous potential and room for growth. Countries such as India, China, Japan, and South Korea are experiencing considerable growth in the insurance TPA industry due to good economic conditions, increased insurance penetration, and legislative reforms to improve insurance sector efficiency and transparency.

Europe offers a wide range of services. Regulatory reforms, such as the introduction of the EU's General Data Protection Regulation (GDPR) and the Insurance Distribution Directive (IDD), are transforming Europe's insurance market. These requirements prioritize transparency, consumer protection, and data privacy, prompting insurers to delegate administrative duties to TPAs with compliance and risk management experience.

Segmental Analysis

The market is segmented by type into Health Plan Administrators, Third-party Claims Administration, and Worker’s Compensation TPA.

Health insurance dominated the market during the forecast year. Within the health insurance domain, TPAs serve as intermediaries, streamlining medical claims and policy administration processes. This segment plays a vital role in ensuring the smooth functioning of health insurance operations. In addition, the improvisation in the claim management system has also propelled the market growth.

The retirement plans acquire the second place in insurance type. Retirement insurance, often related to pension plans and annuities, benefits from TPAs' expertise in managing these long-term financial products. TPAs ensure the seamless distribution of retirement benefits. Retirement planning regulates retirement income goals, actions, and decisions necessary to fulfill those goals.

TPAs specializing in CGL insurance aid businesses in managing liability claims, which is critical in safeguarding against legal and financial consequences. Commercial general is an insurance policy that covers a business in bodily injury, property damage, and personal injury caused by the business's operations, products, or injuries on the business's premises.

Based on service, the market is fragmented into Claims Management, Policy Management, and Commission Management. Claims management is a critical service insurance third-party administrators (TPAs) provide, including processing, adjudicating, and settling insurance claims. This sector handles a variety of responsibilities, such as claims intake, document verification, investigation, and payment processing. To reduce disputes, fraud, and operational inefficiencies, TPAs that handle claims management collaborate closely with insurers and policyholders to ensure that claims are resolved on time and accurately. Effective claims management necessitates knowledge of insurance legislation, risk assessment, and customer service to produce good results for all parties involved.

Policy management is the administration and maintenance of insurance policies over their entire lifecycle, from issuance to renewal or termination. TPAs that offer policy management services handle policy underwriting, issuance, endorsements, renewals, and cancellations on behalf of insurance companies. This category covers insurance data entry, policy document preparation, premium billing, and policyholder communication. Policy management TPAs maintain regulatory compliance, accurately collect policy details, and offer timely updates to insurers and policyholders. Effective policy management is critical for keeping accurate records, managing risks, and optimizing insurance operations.

The processes and systems that are used to deal with commissions paid out to insurance agents, brokers, and other intermediaries are referred to as ‘Commission Management’". Insurance TPAs manage the calculation of commissions owed to agents/ brokers based on various factors such as number of policies sold, premiums collected, and specific terms of the insurance contracts deal. They ensure accurate calculation and timely payment of these commissions. TPA, in most cases, acts as an intermediary on behalf of the insurance agents and brokers to easily resolve this type of dispute. To address agents and brokers questions and concerns regarding commissions, to maintain a clear and transparent process of paying commissions, and to assist in each matter or question related to them, there is a Commission Management team. 

The market is further bifurcated by application into healthcare, construction, real estate, hospitality, transportation, and staffing. Insurance third-party administrators (TPAs) rely heavily on the healthcare industry as a clientele. Healthcare TPAs administer health insurance claims, benefits, and provider networks for insurers, employer-sponsored health plans, and government healthcare programs. These TPAs provide comprehensive healthcare services, including medical, dental, vision, and prescription medication coverage. They collaborate closely with healthcare providers, insurers, and policyholders to guarantee timely claims processing, cost containment, and high-quality healthcare delivery. Healthcare TPAs are essential in navigating complex healthcare regulations, controlling healthcare costs, and improving patient outcomes in an ever-changing healthcare environment.

The construction sector uses insurance TPAs to manage various insurance programs, including general liability, workers' compensation, property, and surety bonds. Construction TPAs provide risk management, claims administration, and compliance services targeted to the specific requirements of construction corporations, contractors, and subcontractors. These TPAs manage claims for workplace injuries, property damage, and building defects, reducing risks and ensuring regulatory compliance. Construction TPAs assist organizations in navigating the complicated insurance requirements of construction projects, minimizing liabilities, and protecting assets, allowing them to focus on project delivery and business success in a dynamic industry environment.

Based on enterprise size, the market is fragmented into large enterprises and small and medium-sized enterprises. TPAs offer a range of services tailored to the needs of large enterprises. This can include claims processing, policy administration, underwriting support, and customer service. Large enterprises often require sophisticated risk management strategies. TPAs can provide expertise in risk assessment, mitigation strategies, and compliance with regulatory requirements specific to the insurance sector. TPAs differentiate with industry expertise, customization options, and robust service delivery models, making them crucial for large enterprises seeking efficient and compliant insurance management solutions.

TPAs offer simplified insurance solutions such as basic policy management, claims handling, and customer support, tailored to SMEs' specific needs and budgets. TPAs leverage technology for efficient service delivery, offering SMEs access to online portals for policy management and claims tracking. The TPA market for SMEs is competitive, focusing on affordability, service quality, and flexibility to meet the unique needs of smaller businesses in diverse industries.

Impact of covid-19

The COVID-19 outbreak is expected to open up new insurance third party administration market opportunities. The introduction of digital technology in insurance and the rising demand for TPAs solutions managed on the cloud are predicted to heave the market.

Also, there was a growth in health insurance claims during the pandemic. Thus, insurance companies have emphasized investing in TPAS services to efforts to a greater extent. These factors have boosted the morale of insurance companies to consider TPAs for improving efficiency and business operations during the pandemic.

Market Recovery Timeline and its Challenges

The market is witnessing growth owing to the surge in technology and the growing concern of people after the COVID-19 pandemic attack. Very few TPAs have addressed the changing needs of the insurance industry and thus are focusing on building the requisite capabilities in data, talent, and technologies. Due to this, the market is expected to quickly return to the pre-pandemic level.

Although some TPAs are gaining momentum to their pre-pandemic level, few TPAs lag. Such TPAs face significant challenges such as rapidly changing rules and regulations, ever-changing employer and employee health needs, staff retention, recruitment, growing security concerns, and technological limitation in some areas.

Recent Developments

1. May 2024- Sedgwick began the next phase of AI technology development to change the claims industry.
2. May 2024- Maritain Health's new packaged solution, Meritain Health OnPoint Solutions, answers a true need to engage members in their health.
3. January 2024- UnitedHealthcare launched a new resource to help people access a curated suite of health programs.