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BRISBANE, Australia-The concept of third-party administrators is new to Australia but essential as more Australian risk managers explore the possibility of self-insuring or increasing deductibles, a risk manager says.

An in-house claims management department needs "a lot of claims to develop the expertise required," Kevin Knight, Assn. of Risk & Insurance Managers of Australasia life member, told a meeting of the Queensland ARIMA chapter.

A TPA, however, can bring to one company the experience of a broader range of industries and organizations.

Mr. Knight, risk management coordinator for the Queensland Education Department, was commenting on a presentation by Jack Campbell, chairman of Gallagher Bassett International Ltd., who said the concept of third-party claims administration had its genesis in the U.S. market's premium hikes of the 1970s and 1980s.

Mr. Campbell, based in Itasca, Ill., said the alternative market grew out of the non-availability of insurance, which saw risk managers' change their approach. They needed help with services that insurers traditionally provided, Mr. Campbell said.

This year Gallagher Bassett and loss adjuster Wyatt Group formed a joint venture company, Brisbane, Australia-based Wyatt Gallagher Bassett Pty. Ltd. Wyatt Gallagher Bassett is launching the third-party administration concept in Australia (BI, April 14).

Mr. Campbell said the traditional approach has been to "insure what you can and retain what you can't." The hard market forced a shift to "retain everything you can't insure," and that meant risk managers who in the past had been insurance buyers "suddenly now had to take control."

"The development of the alternative market created a shift in the traditional claims adjustment industry," he said. "The marketplace sought new solutions. Risk managers were forced to look for new suppliers of loss control and claims services."

Millions of dollars were lost to the alternative market, and risk managers began to fulfill the real risk management role: using controllable resources to reduce the impact of uncontrollable events.

"Risk managers went to the traditional loss adjusters, and TPAs developed as the need for sophisticated products for individual exposures grew.

"Risk managers didn't want shelf products; they wanted information systems to help them make informed decisions and to give them the ability to have financial control," Mr. Campbell said.

The TPA market in the United States now has $2.7 billion in annual revenues, he said.