Fronting Company
What Does Fronting Company Mean?
A fronting company is a business entity that sells an insurance product but transfers the associated risk to another company. This arrangement is possible because the company assuming the risk is not licensed to sell that product in the given region.
Insuranceopedia Explains Fronting Company
The term “fronting company” derives from the definition of “front,” meaning it conceals the true controlling agent. In this context, the fronting company’s role is to legitimize the business operations of another insurance company, or reinsurer. The reinsurer is not authorized to operate in a particular location, but the fronting company is. When the reinsurer assumes the risk, the fronting company earns commissions from the insurance sales. The only risk the fronting company faces is the potential failure of the reinsurer to pay out claims, in which case the fronting company would be responsible for covering the costs.
