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:
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Answer & full 3-part explanation (select an option above, or peek)
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.