The Role of The Plan Administrator

Administration is an important issue for self-insurers due to the need to maintain data and to replicate the claims paying function of the insurer. For most self-insurers who are considering whether or not to perform their own administration there are a number of issues to consider including the cost, the availability of expertise and time that would be required to self-administer a plan.

It is important to establish which entity will be responsible for paying claims and administering a self-insured plan at an early stage as quite often confidence in administration and claims paying will be key to obtaining excess insurer support. For single companies that are self-insuring, the function is normally best served by an outside company such as a third party administrator, commonly known as a TPA. as administration of the plan will normally be outside a company's area of expertise However on group programs where risk is being assumed for other parties losses the role of a third party administrator is often assumed by a managing general agency whose role is to ensure that business is underwritten as well as administered.

The Role of The Administrator

The role of the Third Party Administrator is to replicate the administrative services of an insurance company and its functions can be summarised as follows:

(i) Bookkeeping

Adequate systems are required to monitor claims and performance. Details of each claim will need to kept and these will include the date of loss, amount and type. It is important to be able to set up adequate reserves (see below) on individual claims in order to determine a true picture of the programs performance. Efficient monitoring and reporting also allows the self-insurer to act accordingly

(ii) Paying Claims

 Claims Payments require specialist skills and expertise. As well as ensuring that all claims are settled promptly, the administrator also needs to determine whether there could be any potential subrogation against third parties, whether the self-insurer is likely to face a claim from a third party and also what the ultimate expected losses will be.

(iii) Loss Reserving

In order that adequate funds can be set aside for claims and to assist with the monitoring of the program, reserves need to be set aside for losses that have either happened and have not yet been paid - or which have happened or may happen and which have not yet been reported. Often claims adjusters are hired to review losses and to make sure that the self-insurer is not being charged too much for a claim. Loss reserving is most complex on liability claims as these award are often subject to court rulings to decide liability and damages however efficient claims handling can play a role in preventing claims going to court.

Actuaries can play a key role in reserving as they can be used to project overall loss ratios following development payment patterns on previous claims. Triangulations, sometimes known as point in time studies, can also be used to project a final loss ratio by examining prior years' loss ratios after certain timeframes and applying any trend in deterioration to current years.