Introduction
TPA's business and insurance activities
Comment


Introduction

Given the growth of the insurance industry, entities such as insurance agents, brokers and loss adjustors are becoming increasingly important. These entities play different roles to enable the industry to prosper – for example, to provide more value-added services to their clients and to facilitate insurance processes

Among these entities, third-party administrators (TPAs) are emerging at the forefront, especially in the field of health insurance. Currently, there is no unified definition of a "TPA" as they conduct various functions and are subject to different regulatory requirements in different jurisdictions. However, in most cases, TPAs are known to help insurers collect and process information during the process of insurance, underwriting and claims, and improve their risk management and control capabilities. It is commonly recognised that insurers are outsourcing some of their activities to TPAs, because of TPAs' expertise in certain fields.

In China, along with the expansion of the insurance market in recent years, more insurance entities, including insurers and reinsurers, would like to develop their cooperation with TPAs. It is anticipated that more TPAs will be founded in the future, with their products and services expected to be more diversified and abundant. As an increasing number of aspects are covered by TPAs, with their multiple business models, a concern arises about whether this activity may be restricted under insurance regulations.

This article, the second of two parts,(1) focuses on the scope of application of TPAs in the insurance sector, as well as the remit of TPA authority in insurance processes. More broadly, this series aims to explore the possible connection between the business scope and insurance activities of TPAs under the legal and regulatory framework of China (Hong Kong, Macao and Taiwan are outside the scope of this series).

TPA's business and insurance activities

As TPAs mainly serve insurance entities, their business is strongly connected to the insurance sector. Healthcare management services seem to be one of the most popular TPA activities, wherein the TPA provides healthcare management services such as the following to the insureds or applicants of health insurance:

  • healthcare service provider networks;
  • physical examinations;
  • online treatment;
  • health consultations;
  • medicine delivery; and
  • other related services.

According to the Circular of the General Office of the China Banking and Insurance Regulatory Commission on Standardising the Health Management Services of Insurance Companies issued by the China Banking and Insurance Regulatory Commission on 6 September 2022:

For healthcare management services that cannot be carried out by themselves, insurance companies may cooperate with health management service providers, medical institutions, rehabilitation service providers and nursing service providers to enrich healthcare management service and meet the diversified and personalized health needs of customers.

The regulator thus recognises TPAs' participation in health management and considers it as an important supplement to insurers' healthcare management relevant to health insurance.

In providing healthcare management and other services, many TPAs would like to contribute beyond value added services to services such as:

  • insurance product development;
  • policy management;
  • underwriting;
  • claims; and
  • reporting.

Maximising their involvement in these activities would enable them to improve their competitiveness and value.

For instance, in claims processing, some TPAs authorised by an insurance company may decide whether to pay compensation in accordance with policy terms, conditions and liability exclusions. In policy management, some TPAs may communicate with policyholders on inquiries related to policy execution and servicing and issue certificates of insurance by themselves.

Although this remit of TPA authorisation might be common elsewhere, it could trigger compliance issues in China (for further details, please see "China's insurance industry regulation: emergence of TPAs". Taking policy conclusion as an example, article 13 of the Insurance Law stipulates:

An insurance contract shall be concluded when a policyholder applies for insurance and the insurer agrees to underwrite the insurance. The insurer shall issue an insurance policy or other insurance certificate to the policyholder in a timely manner.

Hence, by law, only insurers are entitled to issue an insurance policy or certificate of insurance and TPAs are not eligible for this activity.

Since TPAs are dedicated to enriching their products to provide multiple services, it is hard to analyse each service in detail. Moreover, as the boundary between the business of TPAs and insurance activities is not explicit from a legal perspective, and only a few sanctions have been issued so far, it is difficult to draw a clear conclusion on this matter. However, general advice for TPAs lies in refraining from making any decision on insurance-related activities, where such decisions should ultimately be made by a licensed insurance entity. As such TPAs' insurance-related business should remain on the advisory or supporting level. Furthermore, TPAs should refuse to directly engage in typical insurance activities such as concluding policies, collecting premiums or issuing benefits.

Comment

With more global TPAs expanding their business to China and increase the number of domestic TPAs, attention should be paid to their operating compliance. As the insurance industry is heavily regulated by Chinese laws and regulations and strictly supervised by the regulator, the unlicensed status of TPAs does not release them from their compliance obligations, particularly with regard to their business activities. In fact, although TPAs may wish to promote their involvement in the insurance sector, they should constrain themselves – overstepping the boundaries of insurance activities could lead to sanctions.

For further information on this topic please contact Zack Fu or Agnes Wang at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected] or [email protected]). The AnJie Law Firm website can be accessed at www.anjielaw.com.

Endnotes

(1) For the first part of this series, please see "China's insurance industry regulation: emergence of TPAs"