Third-party administrator (TPA) services have been around for quite some time, and while there has been consolidation and change of ownership in the industry, improvements in service design and value creation have been rather slow and incremental. Despite the “no brainer” business case for insurance companies to outsource their administration to a TPA and the potential for the release of reserves, adoption rates are extremely low.
While traditional TPAs continue to deliver value to insurance companies, the timing is right for the evolution of Digital TPAs focusing on breakthrough innovation in customer experience and significant reduction in administrative spend. Insurance companies are now seeing the opportunity to fast track the Digital journey across their business by leveraging the significant investments into IT and platforms made by TPA service providers, which is leading to further consolidation of the industry.
With this in mind, there are six compelling trends that characterize and differentiate Digital TPAs:
- Digital customer engagement – 80% of consumer engagement in the insurance industry is currently happening through traditional paper and voice-based channels, and it’s not likely to disappear any time soon. However, Digital TPAs enable policyholders to interact with a company’s customer service center using the digital channel of their choice, enabling members to start their customer journey on one channel and complete it on another – providing complete flexibility and responsiveness across a broad range of demographics. Over 60% of interactions take place through digital channels, delivering more data and analytics that provide a much greater view and inform product decisions across the business.
- “No regret” product launches – while traditional TPAs mimic the often inefficient process used by insurance companies to launch new products, Digital TPAs leverage digital consumer experience tools to create additional sales and distribution channels using flexible operating models to help manage risk. This enables TPAs to carry out “no regret” launch of new products within 90–120 days – partnering with a company’s growth journey if the product is successful, or continuing to administer as non-core block if it isn’t. This allows companies to benefit from an agile and “lite implementation” process to experiment with product design.
- A reduced paper environment – with digital customer interactions delivering information via IVR, text message, email and via customer portals, Digital TPAs focus on further eliminating paper through automating document, payment and e-statement processing, leveraging artificial intelligence (AI) to route transactions to a specialized team. Using less paper leads to more objective data collection, which translates to better insights.
- More insights, less reports – Digital TPAs are in the unique position of having access to an insurance company’s claims and policy data. To this end, they are investing significantly in creating useful insights and analytical models to benchmark and enhance their administration platforms for enhanced decision-making at the time of underwriting and better or more accurate claims reserving.
- Conversions vs. technical wrappers – Digital TPAs offer a flexible approach to execution of conversions, converting the blocks three times faster and taking a wrapper-based approach to legacy administration platform to drive efficiencies (where it makes sense). Digital TPAs also lead with a consulting approach to identify the most optimal solution that fits the characteristics of the insurance block under consideration.
- Platform ecosystem vs. administration system – Digital TPAs are investing significantly in building out the platform ecosystem to include integrated “plug and play” third-party or proprietary applications. These are stitched together in a highly automated environment to drive efficiencies and increase productivity 3–5 times in terms of policy count handled per processor.
In essence, Digital TPAs are focusing on the specific business outcomes that have eluded the industry until now – a paperless environment, jet issuance, rapid product launches, electronic claim payments, robotics-led conversions, straight-through claims processing up to 99% for structured products, increased adoption of digital customer engagement channels/self-service adoption, and a flexible execution approach based on characteristics of the insurance block, as opposed to a “one size, fits all” approach adopted by traditional TPAs.
This transition and disruption in the industry is being driven by a few technology-enabled Digital TPAs, which calls for even closer collaboration between insurers and TPAs to drive administration spend down to a historical low and enhance customer experience for policyholders, providers and members.
Learn more about Capgemini’s viewpoint on disruptive trends and innovation in the front-, middle- and back office of a Digital TPA company.
And keep your eyes peeled for six more blogs each of which focuses on a different trend!