An insurer's responsibility to review and audit a third-party administrator

Texas House Bill 3508 (HB3508) proposed changes to how insurers oversee third-party administrators (TPAs) who handle tasks like claims processing. The bill aimed to update the frequency and methods of these audits. Specifically, it required insurers to conduct reviews of TPA operations at least twice a year and to perform audits at least every two years. Notably, the bill removed the mandate for these audits to be conducted on-site, allowing for more flexible auditing methods, such as virtual audits. This change was influenced by the positive experiences insurers had with virtual audits during the COVID-19 pandemic.

Supporters of HB3508 highlighted its modernization of audit practices, emphasizing the flexibility it offers insurers in overseeing TPAs. They pointed out that virtual audits, which became common during the pandemic, have proven effective and efficient. By removing the on-site audit requirement, the bill was seen as reducing operational burdens and costs for insurers while maintaining rigorous oversight of TPAs. This approach was viewed as a step forward in adapting regulatory practices to contemporary technological capabilities.

Critics of HB3508 expressed concerns that eliminating the on-site audit requirement could lead to less thorough evaluations of TPAs. They argued that virtual audits might not capture the full scope of a TPA's operations, potentially overlooking issues that could be identified during in-person assessments. There was apprehension that this change might compromise the quality of oversight, potentially affecting the reliability of services provided to policyholders.