In an initial program, an insurance company (the main airline) issues a policy and transfers part or all of the risk to the insured. Most initial funding programs use a reinsurance transfer to the insured person's captive to ensure the risk sharing required by the insured. An initial policy is a risk management technique in which an insurer underwrites a policy to cover a specific risk, but then transfers the risk to a reinsurer. Initial funding policies, which are a type of alternative risk transfer (ART), are the most used by large organizations.
Because the reinsurer assumes all the risk of the policy, it maintains full control over the claims process. Fronting can be defined as an alternative way of entering markets and increasing premiums, a valid tool that can be used both for the benefit of an insurer that needs the front and of an insurer that is willing to be the first to obtain adequate compensation. The leverage granted to the main insurer or the health problems of a major insurer can have a negative impact on the business. The insured receives a policy from the parent company, but the risk covered by the program ultimately falls on the captive insurance company.
The reinsurer links its product to the main insurer, so that there is a concentration of risk and there may be no alternative shell insurers. By using a shell company, the insured may be in a better position to deduct premium payments from insurance contracted through the parent company and, ultimately, through the captive one. The difficulties that captive insurance companies have had in finding suitable first-line insurance companies at cost-effective rates are one of the biggest challenges facing the captive insurance industry today. In its most common form, a commercial insurance company (“parent company”), authorized in the state in which the risk to be insured is located, issues its policy to the insured.
The presentation relates to the use of an authorized and authorized insurer to issue an insurance policy on behalf of a self-insured organization or a captive insurer without the intention of transferring any of the risks. Fronting has been defined as the use of an authorized and authorized insurer to issue an insurance policy on behalf of a self-insured organization or a captive insurer without the intention of transferring any risk.