A third-party administrator (TPA) is best described as a person who:
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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 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.