Insurers’ extreme focus on employee and customer experience is forcing TPAs to adapt their offerings beyond commoditized services by leveraging digital technology.
Some third-party administrators (TPAs) are building the requisite capabilities in talent, technologies and data to address the changing needs of the insurance industry, but most TPAs lag behind. Everest Group reports that the top 10 US TPAs suffered a significant drop in year-on-year revenue growth, falling from 20% for 2017-2018 to 5-10% for 2018-2019. Everest Group predicts the slowdown will continue in the year ahead under the impact of the COVID-19 crisis as TPAs look to battle against the falling demand and the changing requirements of insurers.
“Insurers’ extreme focus on employee and customer experience is forcing TPAs to adapt their offerings beyond commoditized services,” said Skand Bhargava, practice director at Everest Group. “Most of the digital-led use cases that TPAs have implemented thus far are low on the sophistication scale when compared to the use cases implemented by insurance IT or Business Process Outsourcing providers. However, some leading TPAs have showed signs of change, making intensified digital investments in more new-age partners and technologies, such as the use of IoT sensors, artificial intelligence, predictive image analytics, telematics and predictive modeling. As a result, these more innovative TPAs are reaping differentiation in the market and positioning themselves for success amidst recessionary pressures because of the greater value they are providing for their clients. Going forward, those TPAs who deliberately commit to well-executed digital transformation will not only deliver a more progressive value proposition to clients but also secure the relevance of the overall industry, especially considering the current environment.”
Third-party administrators are commonly used by health insurance providers as well as enterprises or healthcare organizations who fund their own health plans for employees. TPAs assist these organizations with claims administration as well as premium billing, customer enrollment, and other day-to-day operations of insurance programs.
Currently, the Top 10 TPAs in the U.S command only 3-5% of a $270 billion market, with some of the largest TPAs functioning on single-digit operating margins and very few keeping pace with digital transformation. By leveraging digital technology, TPAs can improve margins, drive differentiation, address operational challenges, enhance talent throughput and ensure client retention. In the longer term, digital adoption can help TPAs adjust to changing risks and move up the value chain to manage critical tasks.
Everest Group shares these findings in its recently published report, Third Party Administrator (TPA) State of the Market Report 2020: Industry Facing an Urgent Mandate to Transform. This report examines the global TPA market, particularly the property and casualty (P&C) and workers’ compensation insurance segments, including changes in client demand patterns and delivery requirements from TPAs, and the role and adoption of digital levers.
About Everest Group
Everest Group is a consulting and research firm focused on strategic IT, business services, engineering services, and sourcing. Our clients include leading global enterprises, service providers, and investors. Through our research-informed insights and deep experience, we guide clients in their journeys to achieve heightened operational and financial performance, accelerated value delivery, and high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com.
Third-party administrators, BPO providers, and BPO providers with TPA capabilities each have something to offer insurance carriers; however, determining the best choice for an individual enterprise depends on specific outsourcing drivers
Healthy P&C Insurance BPO market has grown 17 percent since 2012 and is expected to grow 14 to 16 percent through 2017.
The global property and casualty (P&C) insurance business process outsourcing (BPO) market registered nearly 17 percent compound annual growth rate (CAGR) over the last few years to reach US$1.45 billion, according to new research from Everest Group. Amid political uncertainties in the United States (due to the presidential election) and the United Kingdom (due to Brexit), Everest Group expects the market to grow at 14 to 16 percent, reaching US$1.9 billion by 2017.
The growth potential of the P&C Insurance BPO market is highly attractive to service providers, but with over US$460 million up for renewals in the next three years, competition will become more intense. Everest Group advises service providers to differentiate themselves through specific value addition capabilities, particularly analytics, robotic process automation (RPA), and third-party administrator (TPA) capabilities.
“Digitalization is another key driver that will impact this market,” said Skand Bhargava, practice director, Business Process Services, at Everest Group. “P&C insurers need to respond to the strong and growing consumer preference for digital channels, and most will turn to service providers to help them build multi-channel capability and improve time to market with these digital products and services. Digitalization is one more example of how service providers are progressively managing a larger part of the P&C value chain, far beyond claims processing.”
These results and other findings are explored in a recently published Everest Group report: “Property and Casualty Insurance BPO – Annual Report 2016: The Dawn of Transformational Era – Adapt and Evolve to Succeed.” This research examines the global non-voice, third-party, industry-specific P&C Insurance BPO. It provides detailed analysis of market size and growth, solution characteristics, emerging trends and the service provider landscape for the market.