For those providing insurance to healthcare providers, fronting programs are an option to ensure they meet financial responsibilities without additional risk transference. Sometimes, self-insurers or captive reinsurers benefit from this form of program. The insurance market continues to look for ways to prevent excess risk with operations.

What Is an Overview of Fronting Programs?

The industry defines fronting as an insurance provision to an insured entity from an admitted, licensed insurance company without a transfer of insured risk. The insured retains the fundamental risks of loss through an indemnity agreement and deductible. Depending on the fronting policy, the transfer to a captive insurer takes place through a reinsurance agreement.

Large companies often rely on fronting policies to help with conducting business across different regions or states. Some regulators are wary of the policies, though, because companies can skirt state insurance regulations by using the coverage of a fronting company. The fronting company may need the correct licensing in the jurisdiction where the reinsurer takes on the entire risk.

What Are Fronting Programs For?

With a fronting arrangement, a captive can meet the financial responsibility laws laid out by a state’s governing bodies. The laws typically require businesses to maintain evidence of sufficient coverage underwritten by an admitted insurer. The coverage could be for workers’ compensation insurance, auto liability, or other risks.

Business Negotiations

These arrangements could also be a part of negotiations with business contracts, such as service contracts, leases, or construction agreements. One party may require the other to present evidence of coverage through an admitted insurer. There is often a stipulation concerning a minimum amount of coverage for a particular risk and a specific threshold of financial rating for the admitted insurer.

With a fronting policy, the party needing coverage can meet a contract’s specific requirements by having a policy and certificate of insurance issued from the name of the fronting company. The company meets the terms while the insured assumes the risks.

Business Operations

Depending on the scope of the operations or the need for niche coverage, fronting programs provide a way for businesses to gain coverage for certain risks. It’s also helpful for maintaining insurance compliance across different states or regions. The captive insurer doesn’t have the burden of maintaining a license in each state if the fronting company has the license.

Business Financials

A fronting company could help a business achieve tax deductibility. The premium payments could be a tax deduction for the insurance when paid through the fronting company and the captive. However, the tax benefits and applicable tax laws are unique to a business.

Fronting Programs in a Nutshell

For insurers, fronting is a market strategy that can bring additional income without significantly incurring new risks. Added capital benefits growth, marketing, and staffing needs. A limited number of insurers offer fronting policies, making it a business opportunity for the insurer who can support the risk involved.