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If you work for a third party administrator (TPA) and have been charged with the task of determining the licensing needs of the fi rm, it can seem overwhelming to say the least. However, take heart because there are ways to streamline this process. I have been involved in the TPA licensing process for

many years and I will share some of my experiences with you.

Knowing the Scope of the TPA’s OperationsFirst and foremost, you need to have a complete understanding of the scope

of the TPA’s operations. There are jurisdictions that provide exemptions from

licensing or from licensing requirements for certain activities. For example, some

jurisdictions provide exemptions for a TPA that exclusively administers self-insured

plans that are governed by ERISA. There are a couple of jurisdictions that provide

a licensing exemption for a TPA that does not administer claims. There are also

a few jurisdictions that provide an exemption for a TPA that has fewer than 100

insureds residing in the state.

State LawsWith a clear understanding of the scope of the TPA’s operations, the next

step is to review the state’s definitions of a TPA as set forth in the state laws.

The majority of licensing exemptions will be set forth in these definitions. If you

Streamlining the TPA Licensing Process

Written by Scott ShefferFLMI, CLU, AIRC, HIA, MHP

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don’t have access to an online legal service, state laws can be obtained online from the respective state insurance department website. It may be a daunting task, but the laws for each state in which the TPA will be operating have to be reviewed. With an understanding of the TPA’s scope of operations, you can determine if your TPA falls under a specific state’s definition of a TPA.

As a back-up to reviewing the state TPA definitions, you can send an email to the state insurance department that sets forth a detailed description of the TPA’s scope of operations. Most insurance departments will respond to such an email advising whether or not the TPA should be licensed based on the scope of operations. This is a good confirmation of your interpretation of a state’s definition of a TPA and it provides you with something in writing from the insurance department. By completing this first step, you may be able to decrease the number of states in which the TPA will need to apply for a license.

Once you have determined where the TPA needs to be licensed, the next step is to determine which states have adopted the National Association of Insurance Commissioners (NAIC) Model Uniform TPA License Application. If the states you are targeting for licensure are among those that have adopted the NAIC Model TPA License Application, you can significantly streamline the application process.

First, obtain a TPA license from an NAIC Uniform State on a “home state basis”. Then all that is required to apply for a TPA license in the other NAIC Uniform States is a completed NAIC Uniform Application, the applicable fee and a letter of certification from the state where the

license is held on a “home state basis”. A TPA does not need to be domiciled in one of the NAIC Uniform States in order to obtain a TPA license on a home state basis. A TPA license on a home state basis can be obtained by submitting what is required for a resident TPA license in one of the NAIC Uniform States.

The Application and Supporting Documents

The following steps can be taken to save time down the road when applying for a TPA license in other states that have not adopted the NAIC Model Uniform TPA License Application:

• Have a Plan of Operation – Most states will require that a Plan of Operation accompany the TPA license application. The more detailed the Plan of Operation, the less likely it will need to be expanded and/or revised for other states. To make sure that the Plan of Operation will be acceptable for most states, it should include the following: - Mission statement - Company history - Types of services

provided to clients - Marketing Opportunities - Competitive advantages - Description of TPA’s staff

and their competency - Strategic marketing plan - Companies that utilize

the TPA’s services - Jurisdictions in which the TPA

is currently licensed (if any)• Review Administrative Services

Agreement – Several jurisdictions require a copy of an executed or sample administrative services agreement accompany the TPA license application. Most of these states have laws or regulations that prescribe the provisions that

Do you aspireto be a published author? Do you have any stories or opinions on the self-insurance and alternative risk transfer industry that you would like to share with your peers?

We would like to invite you to share your insight and submit an article to The Self-Insurer! The Self-Insurer! The Self-InsurerSIIA’s o� cial magazine is distributed in a digital and print format to reach over 10,000 readers around the world. The Self-Insurer has The Self-Insurer has The Self-Insurerbeen delivering information to the self-insurance/alternative risk transfer community since 1984 to self-funded employers, TPAs, MGUs, reinsurers, stop-loss carriers, PBMs and other service providers.

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must be included in the administrative services agreement insofar as they apply to the scope of the TPA’s operations.

Two states that have strenuous licensing requirements are Indiana and Nevada. It is a good idea to review one and/or both of these state’s insurance department websites and download the checklist applicable to administrative services agreements. Once your administrative services agreement complies with the requirements for either Indiana or Nevada, it should comply with the requirements for most other jurisdictions.

• Audited Financial Statements – Several states require audited financial statements for two prior years. The only exception that will be made pursuant to this requirement is for a start-up TPA that has not been in existence long enough to have an income statement. A start-up TPA can use a current balance sheet with an officer’s attestation in lieu of audited financial statements.

If the TPA is a subsidiary of a parent company, the audited financial statement of the parent company is acceptable only if it provides a separate breakout for the subsidiary TPA. Our experience is that the states will not bend when it comes to the requirement for an audited financial statement. If the TPA is not a start-up company and it does not have audited financial statements, only a limited number of states will grant a TPA license.

SummaryThe licensing requirements for TPAs vary by state. Although the NAIC

Model has been adopted in many states, individual states still have their own

requirements. Having a good understanding of the TPA’s scope of operations and how many people will be serviced within a state helps in the first step of knowing how state laws may apply to your operation. ■

Scott Sheffer has been in the insurance industry for 33 years and employed as an Associate Consultant with First Consulting & Administration, Inc. for 16 years. Established in 1969, First Consulting is a leader in the industry in researching TPA licensing requirements and assisting TPAs in obtaining licenses. Scott’s areas of expertise are TPA licensing, insurer licensing, policy drafting for life and health insurance, producer education and advanced sales. Scott can be contacted at 816-391-2742 or scott.sheffer@fi rstconsulting.com