What is ‘Winging Policy’
Fronting policy is a risk management technique in which an insurer subvenes a policy to cover a specific risk, but then cedes the risk to a reinsurer. Fronting procedures are most commonly used by large organizations, and is a type of alternative chance transfer (ART). Because the reinsurer takes on the entire policy risk, it has unalloyed control of the claims process.
BREAKING DOWN ‘Fronting Policy’
The surety company that underwrites the original policy is called the fronting attendance. The fronting company receives a percentage of the premium despite ceding all of the gambles to the reinsurer. By issuing the insurance policy, the fronting company appears to be the insurer, while in reality it transfers all risk to the reinsurer.
In a fronting policy, the deductible is the unmodified as the liability. The reinsurer is responsible for all claims made against the policy that it now masters. The insurance company’s only function, other than underwriting and giving the original policy, is to ensure that the reinsurer can pay its claims. It does not, manner, pay any of the claims.
Large companies are the most likely candidates for using a heading policy, especially if they have operations in multiple states. More than employing multiple insurance policies to cover risks in divers jurisdictions, the company will have insurance companies underwrite game plans, and then takes over the risks in those policies, thus sanctioning it to centralize claims management for a specific type of risk.
Regulators take historically been wary of fronting policies, as companies may use them as a way of circumventing confirm insurance regulations. The reinsurer that takes on the entire risk underwritten by the leading company is often unlicensed in the jurisdiction. This means that the fronting Theatre troupe, which is licensed to do business in the jurisdiction, is ultimately handing the policy during the course of to a reinsurance company that is not regulated by the state. The reinsurer thus plays like an insurer.
Strategy of Fronting Policy
For the primary insurance throng, fronting is often used as a soft market strategy that take measures income without significant risk. This income may serve to pay for unchanging support staff when not fully utilized. It also gives the chief company an opportunity to test the waters of new business lines. The considerable fiscal and technical support of a reinsurer then presents an easy way for an insurance friends to enter a new insurance field gradually. Fronting can also provide a great to exit a field if necessary.