2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse)

1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2009 Annual Meeting ●Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse)

2. Agenda History of TPAs Makeup of the various types of TPAs, ownership and market focus Administration relationships Insurers Clients Market relationships with insurers Advisors/Consultants Market share and business development Advantages and perceived disadvantages of TPAs Regulatory oversight TPAAC and its role in the current environment What does the future hold? Questions and discussion 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

3. History of TPAs Formed to meet administrative challenges of multi-employer groups Trustee plans Hour banks Pension arrangements Focused consulting Associations Professional groups Trade associations Unassociated multi-employer arrangements 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

4. Billing consolidation when multiple insurers involved Single employer administration Insured and self-funded arrangements Third Party Payer (TPP) and/or Administrator (TPA) MGAs or MGUs 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

5. What do we mean by Administration? TPP and TPA Data gathering and management Eligibility verification Premium billing and remittance Employee queries Document production TPP Claims adjudication Claims payment Claims reporting Will use TPA for both types of administrators. 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

6. Ownership and Market Focus Union Ownership Focused on Trustee plans i.e. PBAS owned by UFCW Developed Hour bank systems Manage Group and Pension administration and investment arrangements Internal Consulting Actuarial valuations for Pension as well self-funded Disability arrangements. 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

7. Privately Owned/Consultant Driven Trustee Groups Associations Trade Professional Industry Large single employers 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

8. Privately Owned No Consulting Premium Billers or consolidators, claims payment Multi-employer unassociated businesses i.e. Chamber of Commerce, Board of Trade Better Business Bureau Independent Federation of Business Single employers Individual Products Privately Owned Broker Premium Billers or consolidators Single employers Some claims payment 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

9. Publicly Traded Consulting Firms i.e. Morneau Sobeco, Mercer, etc. Premium Billing, some Claims Paying Flex and other Benefit Administration Large Single Employers Large Industry Associations Public/Employee Association Organizations i.e. SAHO, MTS (Teachers) OTIP etc. Premium Billing, Claims Paying Disability Management Actuarial Valuations either internally or through external consultants 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

10. Administration Relationships Insurers Out Sourcing for Insurers Collect premium on behalf of insurers Produce booklets, certificates of insurance Administer employee adds, deletions etc. Claims paying Follow insurer guidelines, open to annual or more frequent audits 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

11. Clients May have relationship as Consultant/TPA Represent client needs to insurer Also acts on clients behalf as TPA If appointed by independent consultant will follow direction of client/insurer/consultant In self-funded arrangements act on behalf of client Holds reserves or funds on deposit Administers employee adds, deletions etc. Pays claims 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

12. Market Relationships Insurers Partners Insured products Life, LTD, AD&D, Optional Life, CI etc. Stop loss and out of country pools Insured Health and ASO Competitors Self-funded plans Wellness programs Provide same non-insured products such as Best Doctors, EAPs etc. through other providers 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

13. Advisors/Consultants Partners Captive advisors tied by contract Selected advisors in market Open market Competitors Act as consultants May take ownership of plans for Tied Advisors Seek business through captive agents in opposition to incumbent advisors 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

14. Market Share and Business Development Group and Individual Benefits Estimated Insured and Self-funded Benefits In excess of $4 Billion Self-funded Health, LTD, Trustee arrangements Pension Funds under Administration Unknown but includes Trustee plans, large single employer Defined Benefit administration Money Purchase administration Investment services 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

15. Advantages and Perceived Disadvantages of TPAs Advantages Systems designed to administer difficult Multi-employer arrangements Focused personalized administration Self-funded Health, LTD, Trustee arrangements Consolidation of multiple insurer arrangements Lower Cost environment Pension Funds under Administration Trustee plans, large single employer Defined Benefit and Money Purchase administration and Investment services 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

16. Perceived Disadvantages Not as efficient or competent as insurers Process claims do not adjudicate Not technically developed Personnel not trained well Unregulated and therefore nor properly overseen Unfair competition, not subject to same capital and financial requirements as insurers A number of companies with questionable practices 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

17. Answers to Perceived Disadvantages Competence, training and system development vary by TPA but in most are well developed Most TPAs train their personnel to a high standard or hire already trained employees Main business is administration, proper claims adjudication is critical (most adhere to this) Old Superintendents Regulations are adhered to as are CCIR rules by most TPAs do not assume risk and therefore capital and financial obligations insurers are subject to are not required by TPAs. Any risk in TPAs portfolio is assumed by insurers. Adhered to by most. What about those that are not included with “most” 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

18. Regulatory Oversight TPAs are the largest unregulated Area in the Financial Services Sector!? There is no legislation or proposed legislation or regulation to govern TPAs Risk Based Market Regulation will have an impact on both TPAs and insurers that outsource to them OSFI Risk based rules require insurers to ensure that TPAs they work with follow best practices and a code of conduct The unregulated environment and those TPAs not following Best Practices prompted the formation of the Third Party Administrators’ Association of Canada (TPAAC) 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

19. TPAAC and Its Role in The Current Environment Formed in 2003 by 9 diverse TPAs 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

20. Why Form TPAAC? Met with regulators and TPAs to discuss specific concerns Unregulated industry Not all TPAs follow best practices (those not considered part of “most”) Little market or industry input Little relationship between TPAs in what is a large insurance market sector No common body to meet challenges and opportunities 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

21. Process of Forming TPAAC Met with regulators and TPAs to outline initial approach to meeting concerns Formed basis for Association and presented vision to Regulators, TPAs and other industry participants Made a final verbal and written presentation to CCIR Formally set up TPAAC Met with CLHIA to outline TPAAC’s direction Started process of moving toward one common set of Best Practices and Code of Conduct for TPAs in Canada 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

22. TPAAC Mission “To create a financially strong Third Party Administration industry and to establish certain guidelines and uniform standards required to preserve the integrity of our industry and to protect our consumers." 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

23. What does TPAAC Offer Code of Conduct Best Practices Industry education and information sharing Liaison and joint proposals with other Industry participants Stakeholder with CCIR Set high ongoing standards for Association members Adding new vision to changing insurance industry 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

24. Requirements for Membership Application for Membership E&O and Bond coverage No Co-mingling of funds held – proper use of Trusts Comprehensive Disaster Recovery Program Established procedures and training Good business practices Audit by KPMG of Key factors in TPA operation Ensure all requirements of membership are met If not meeting criteria, KPMG indicates what needs to be done for TPA to be able to join 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

25. What Does the Future Hold Third Party Administrators are a large and increasingly important part of the market Still a great need for increased participation in TPAAC to ensure Best Practices are being met by TPAs in the market Increasing partnerships with Insurers Increasing work with top Advisors Growth in self-funding of health and dental Work closely with regulators, the CLHIA and other industry stakeholders Will become stronger contributors to the future of the insurance industry 2009 Annual Meeting Assemblée annuelle 2009 Third Party Administrators (TPAs) - Their Role in the Group Insurance Industry

26. Thank you Questions 2009 Annual Meeting Assemblée annuelle 2009