5 Ways to Avoid TPA Licensing Speedbumps
Jason Robbins, J.D.
Consultant
Nearly every week, we at First Consulting & Administration hear from a third party administrator (TPA) exploring a new business opportunity, but they often have the same problem: they aren’t licensed in that jurisdiction yet. That realization is immediately followed by the following question - “What can we do to get our application approved as quickly as possible?” While the simple answer is to make sure you provide complete answers and all required documentation in the initial submission, our experience has found several items that often lead to delays in the licensing process.
Paying close attention to the following items can help TPAs avoid objections and get through the licensing process as quickly as possible.
- Plan of Operations - This is a very common requirement in TPA licensing that sometimes gets overlooked. This document should be state-specific where applicable, and it’s your opportunity to explain to regulators the specific products/services you wish to offer in a state, while demonstrating your qualifications to serve its residents. The more information you can provide to the regulator initially, the less questions they will have for you after reviewing your application. Please review our article regarding "Plan of Operations" for more tips on drafting yours.
- NAIC Biographical Affidavits – The leading cause of objections in the licensing process are inaccuracies or incomplete answers in biographical affidavits. Generally, biographical affidavits need to be completed by all officers, directors, key management personnel, or any shareholder of 10% or more of the Applicant entity. These are lengthy forms but completing them properly is imperative in order for the regulator to complete their review. We highly recommend that the importance of these forms is made clear to those required to complete them and recommend they receive detailed instructions on completing these forms. For example, if the answer to a question is “None” you must state it as such. By skipping the question or stating “Not Applicable”, you’re likely to receive a follow-up request from the regulator asking for more information, and some states require that the biographical affidavit be redone entirely, or submission of a notarized affidavit that addresses each incorrect answer. Finally, NAIC biographical affidavits are only valid for 6 months from date of execution and must be completed on the most recent form. See our "Do's and Don'ts of Completing the Biographical Affidavit" for more advice.
- Administrative Service Agreements (ASA) – Many states require applicants to submit copies of their executed ASAs or a sample of the agreement prior to receiving a license. It’s important to make sure the agreement accurately reflects the activities the TPA is to perform in the state so it can be reviewed for compliance with the state’s administrator laws. While some states publish checklists of provisions they expect to see in the agreements, we recommend that you work with your legal counsel prior to filing your application to ensure all required provisions are included to avoid further delay in the licensing process. Publicly available checklists from states can be found here.
- Bond and Insurance Requirements – Another common question we receive is if evidence of bonds and certain insurance coverage must be provided with the initial submission or if this can be submitted after a preliminary review has been completed. These items must be included with the initial submission and be in compliance with state requirements. While some states have very straightforward requirements, others require calculations and specific language in the bonds. Working closely with your bond carrier and an experienced consultant can help you provide the state with the correct documentation the first time.
- Financial Requirements – Many states do request information about the financial strength of TPAs in order to verify compliance with net worth requirements and confirm that a TPA has the financial means to meet its obligations to residents of the state. While some states only require financial statements that are certified by an officer(s), others do require audited financial statements. Making sure you provide the required documentation that shows your compliance with each state’s net worth requirements will allow for a timely review of your application.
While we certainly understand the desire to get an application filed as soon as possible, the best practice is to spend some additional time making sure all required documentation is available prior to submitting it for review. The regulator will appreciate receiving a complete and comprehensive submission as will your business partners as you’re likely to get to market much sooner.
For more information on how First Consulting can simplify and accelerate your TPA application process, click here or contact one of our experienced consultants.