A firm that performs administrative services for an insurer — such as processing claims, billing, and enrollment — but is not itself the insurer is called a:

Why A is correct

A third-party administrator (TPA) is an organization that administers insurance business for an insurer or self-funded plan — handling functions such as premium billing, enrollment, claim processing, and recordkeeping — while the insurer retains the insurance risk and the policy obligations to the insured. The TPA is a "third party" because it is separate from both the insurer and the insured and acts under a contract with the insurer or plan sponsor. TPAs are regulated in California because they exercise significant authority over policyholder funds and claims handling, and the definition and duties of TPAs are set out in the Insurance Code.

Why the other options are wrong

• B) A reinsurer assumes a portion of risk from an insurer, making it an insurer's insurer; it does not provide administrative services such as billing and enrollment. A TPA acts on behalf of the insurer or plan sponsor under an administrative-services contract, without assuming the insurance risk.
• C) A fraternal benefit society is a member-owned organization that issues insurance to its members, who share a common bond; it is an insurer, not an administrator. A fraternal society issues the coverage itself, whereas a TPA administers benefits for coverage issued by another entity.
• D) A surplus line broker is a licensed producer who places coverage with nonadmitted insurers in the surplus line market; a broker sells, it does not administer. A broker's function is placing and servicing insurance, while a TPA's function is the ongoing administration of policies and claims after placement.

Memory hook

TPA = the hired back office that runs the paperwork for an insurer.

Why A is correct

A third-party administrator (TPA) is a person who administers claims, collects premiums, or performs underwriting on behalf of an insurer, rather than issuing insurance itself. TPAs commonly administer group life and health benefit plans under contract with the insurer or the plan sponsor. Because they handle premium money and claims, TPAs are subject to statutory definition and regulation, and their duties are designed to protect the plan participants whose benefits they administer. The TPA acts for the insurer in an administrative capacity; it does not assume the insurer's obligations, does not issue the master policy, and does not sell coverage to the public as an agent would.

Why the other options are wrong

• B) The TPA acts on behalf of the insurer in an administrative capacity; the insurer issues the master policy. The TPA performs claims administration, premium collection, or underwriting services but does not become the insurer or the issuer of the coverage.
• C) Representing insureds in litigation against the insurer is the role of an attorney, not a claims administrator. The TPA's function is administrative, processing claims and premiums under contract, not providing legal representation to insureds.
• D) Soliciting and selling insurance to the general public is the function of a licensed agent, not the TPA's administrative role. The TPA works behind the scenes for the insurer, while the agent transacts business directly with the public.

Memory hook

The TPA runs the insurer's paperwork, not the insurer's business.