Navigating challenges in the TPA market
Captive International talks to Kara Knowles of Gallagher Bassett Specialty about the various factors that are affecting the third-party administrator market.
The third-party administrator (TPA) market plays a central role in the claims management ecosystem, offering expertise and guidance across various industries. As highlighted by Kara Knowles, executive vice president of Gallagher Bassett Specialty, the sector currently faces multifaceted challenges and opportunities. From escalating litigation costs and jury behaviour to adapting to globalisation and the aftermath of the COVID-19 pandemic, TPAs operate in a dynamic and demanding landscape.
Knowles stressed that the challenges faced by TPAs are not unique to their role but are shared with the broader industry. The foremost issue is increased severity in litigation, driven by exorbitant jury awards that are reshaping the claims landscape.
“The jury verdicts we’re seeing here in the US continue to be very surprising and quite large,” she said. “The plaintiffs’ bar and their clients have become emboldened, and it is much more challenging to settle cases than it should be.”
This trend has created roadblocks to resolving cases efficiently. As settlements rise in value, so do plaintiff demands, often reaching staggering amounts. Knowles noted: “We attend a mediation or use a third-party neutral, and then we’re getting a $100 million demand.” Such inflated demands significantly increase the complexity of negotiations and drive up operational costs, she explained.
Testing the waters
One proposed solution to counter inflated jury verdicts is for the defence to pursue more trials, even though this approach carries inherent risks.
“The only way we’re going to reset against these jury verdicts is to test them, by trying more cases,” Knowles explained. “But that’s a scary proposition when you see the verdicts we’re experiencing.”
The reluctance to proceed to trial stems from the unpredictability and potential financial fallout of adverse verdicts. Despite this, Knowles noted a positive trend: improved collaboration among defence stakeholders, including TPAs, lawyers, and clients.
“We’re seeing better organisation and communication, along with significant and detailed plans for damage analysis, messaging, and public relations complications,” she said.
This collaborative effort is crucial for countering the well-organised plaintiffs’ bar, which has historically outpaced the defence in strategic cohesion. By leveraging shared knowledge and replicating successful strategies, the defence aims to stabilise the claims environment.
The US claims and litigation market is distinct due to its reliance on the jury system, a feature that Knowles highlighted as a differentiator from other global markets. However, globalisation is narrowing these distinctions.
“We’re seeing a smaller world with respect to products, supplies and people,” said Knowles.
This increased interconnectedness fosters cooperation between the US and international markets, helping standardise practices and share insights across borders.
Networking and leveraging relationships create better outcomes.
“The only way we’re going to reset against these jury verdicts is to test them, by trying more cases.” Kara Knowles
The lasting impact of the pandemic
The COVID-19 pandemic has left an indelible mark on the claims industry, with its effects still unfolding. Knowles points out that the pandemic caused significant disruptions in the judicial system, particularly through prolonged court closures in 2020 and 2021.
“This caused a backlog and it’s only now that we’re seeing courts start to move forward,” she explained.
One unexpected development was juror attitudes toward healthcare providers. While it was expected that the pandemic might elicit greater sympathy for front line workers, the reality has been starkly different, Knowles stated.
“We have not found that,” she said. “Juries are pretty angry, which is not necessarily a direct correlation to the pandemic itself, but they are more angry folks.”
This anger, often directed at corporate defendants such as healthcare systems, has further contributed to large verdicts. Knowles attributed this shift to a range of factors, including worsening economic conditions for some jurors and a general sense of dissatisfaction.
Helping captives manage risk
In the evolving risk landscape, captives are becoming a more prominent feature of corporate risk financing strategies. TPAs such as Gallagher Bassett play an integral role in this space, partnering with captives to optimise outcomes.
“Whether you’re starting your captive or you’ve been established for a long time, it starts with selection of your service providers,” Knowles advised.
Gallagher Bassett provides expertise in claims management and in fostering collaboration among stakeholders to ensure seamless operations. This collaborative approach is vital, as Knowles emphasised, stating: “It doesn’t help to bring in a subject matter expert in six different topics if they’re not talking to each other. Networking and leveraging relationships create better outcomes.”
As the insurance market tightens and companies take on more risk, captives turn to TPAs for tailored solutions. Gallagher Bassett assists in two primary areas: efficient claims management and long-term strategic advice. Drawing on experience across industries, it helps captives implement best practices and refine operational models.
“We provide great value in being your long-term partner by helping clients evaluate best practices and creating the best captive for your individual situation,” said Knowles.
The way forward
The TPA market offers opportunities for innovation, collaboration, and growth. The focus on tackling nuclear verdicts, navigating post-pandemic shifts, and adapting to globalisation highlights the need for resilience and adaptability.
Knowles highlighted the importance of strategic partnerships, clear communication, and collective problem-solving in addressing the complex issues facing TPAs and their clients. While challenges such as jury behaviour and rising settlement costs persist, the sector’s growing collaboration and expertise offer a path toward sustainable solutions.
“The role of TPAs extends beyond claims management—we are pivotal partners in creating a more stable and efficient risk management ecosystem,” she concluded.
Kara Knowles is executive vice president of Gallagher Bassett Specialty. She can be contacted at: kara_knowles@gbtpa.com
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