As we head into the first quarter of 2024, the insurance landscape in Germany is undergoing a significant transformation, and a key player in this evolution is the Third Party Administrator (TPA) outsourcing market as an accepted resource for the country’s re/insurers.
Traditionally, German insurers have been cautious when it comes to outsourcing to TPAs, as many see claims handling as their core competence. However, a shortage of experts and increase in complex claims has led to an increase in demand for trusted claims outsourcing partners.
This, in turn, has led to questions surrounding data protection, particularly sensitive personal data in the case of life insurance and disability claims handling. The complexities around data protection and outsourcing of claims cannot be an afterthought, but if proactively addressed by experienced teams, can be properly accounted for and – crucially – audited and proven.
With these evolving dynamics in the market, we are beginning to see early indications of a shift in mindset. The TPA model is gaining acceptance as a strategic tool for insurers, and a growing number of insurers are opening up dialogues around the possibilities of TPA support in the year ahead, with a focus on scrutinising the expertise and experience of potential TPA support teams.
The Changing Face of TPA in Germany
The global insurance TPA market has been on a steady upward trajectory, with a size valued at $324.9 billion in 2022, projected to reach an impressive $795.1 billion by 2032, growing at a remarkable CAGR of 9.6% from 2023 to 2032. TPAs have emerged as licensed third-party entities that offer administrative solutions to the market, particularly in the complex areas of disability claims handling and life insurance, as well as employment insurance. They act as intermediaries between insurance companies and policyholders, streamlining processes such as cashless claims and reimbursement claims, ensuring effective settlements, among other functions.
A surge in claims can lead to a surge in work for insurers, sometimes at the expense of service quality. TPAs have risen to address this issue by assisting insurers in providing seamless claim settlements and scrutinising complex claims for accuracy. They play a vital role in processing claims, providing a more efficient and customer-friendly experience.
So, what is driving this shift in Germany’s TPA landscape, and why are insurers now considering the outsourcing model more seriously?
The main reason for outsourcing is the shortage of experts, and this is particularly true in the disability claims handling market where cases can be very complex, and experts are few. The challenges are different for the various insurers; large insurers naturally have technical support and experts in-house, however when complex claims volumes rise, the number of experts is often simply not sufficient and external help is needed.
For large insurers, TPA support during work peaks as well as maternity and holiday cover also plays a major role. Small insurers, on the other hand, often require less technical support. Here, the loss of one expert (if the business only has four on-house complex claims specialists, for example) can already mean a 25% loss of productivity.
Many very small insurers can no longer sustainably maintain their expertise and need external support. In addition, demographic change is exacerbating the situation, with a loss of experienced talent in the market through retirement over the coming five years, and a lack of incoming claims experts to replace them.
Data Protection and Expertise
At the same time, German insurers – as with entities across Europe and the UK – have long been concerned about data protection and the expertise available with outsourcing to TPAs. Data privacy regulations, most notably the General Data Protection Regulation (GDPR), have added complexity to data handling and sharing. The sensitivity surrounding personal data – particularly health and disability data – has understandably made insurers cautious about sharing such information with external parties.
However, market-leading TPA providers have recognised these concerns and have invested heavily in robust data security measures and compliance protocols. They understand the importance of maintaining data confidentiality, and many have obtained certifications and expertise to handle data in full compliance with regulatory standards.
Furthermore, the availability of experts with a proven track record in insurance, who thoroughly comprehend the challenges around data privacy, confidentiality, and trust, has improved. This has instilled confidence in insurers, as they can now partner with TPAs who have the requisite knowledge and experience to handle their unique demands.
A partnership approach is critical to the evolving TPA market in Germany. Best practice sees TPAs and insurers collaborate closely to ensure that the TPA solutions align with the insurer’s specific needs and goals. Flexibility is inherent in the model – insurers seeking outsourcing support like this can decide the scope of the cooperation.
Complete outsourcing of claims management is possible, for instance, but so is outsourcing that leaves the decision-making power with the insurer. In this way, the insurer receives the support it needs, but does not lose its core expertise.
This flexible partnership mentality is gaining traction as both parties recognise the mutual benefits and efficiencies of working together harmoniously.
With TPAs acting as an extension of insurers, the shared responsibility for customer satisfaction and efficient claims processing leads to better outcomes for all stakeholders. This collaborative mindset fosters innovation and allows for more tailored solutions that can drive growth, agility, and efficiency, and also ensure momentum with claims handling does not wane at peak times.
A Look at Other Markets
To understand the full potential of the TPA model, it’s instructive to examine more mature TPA outsourcing markets, such as the United Kingdom and the Netherlands. In these regions, the TPA model has already proven its worth – helping insurers grow faster, become more agile, and operate with greater efficiency.
The adoption of TPAs in these markets has been instrumental in streamlining claims processing, reducing costs, and improving overall service quality. Insurers in the UK and the Netherlands have benefited from the expertise and capabilities that TPAs bring to the table, allowing them to focus on core functions and strategic growth.
TPAs: Empowering Growth in 2024
During 2024, the TPA market in Germany is poised for growth. In a market where in-house resources are often stretched, the maturing TPA model, with a focus on data protection, expertise, and partnership, is set to drive efficiencies and enhance the customer experience for insurers and policyholders alike, particularly at peak times for claims.
The lessons learned from more established markets can also ensure that Germany’s insurers adopt best practice with TPA outsourcing from the get-go. It is a transformation that promises to empower a new era of growth and efficiency for the industry in Germany,and the Pro Global team is on standby to support.