The main insurance company is the insurance company on whose paper the insurance policy is issued. However, if the captive or self-insured company does not offer compensation (for example, it declares itself insolvent due to a huge loss), the parent company must comply with the policy. As a result, the parent company assumes the risk and charges a fee for this service. The fee is normally paid as a percentage of the premium.
Fronting is really a special form of reinsurance. A major insurance company is licensed in the state where the captive is at risk. The captive hires the main insurance company, which issues an insurance policy on paper with the main company's letterhead. The two parties then sign an initial agreement that transfers the risk to the captive.
In the end, the captive receives an insurance policy from the main company and the risk lies with the captive. 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. 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 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.