In a volatile or high-risk business market, it’s comforting to know that someone ‘has your back.’ Ironically, an arrangement called fronting insurance can do just that. For companies that struggle with operational and strategic risk each day because of their hazardous industries, this type of provision makes sound fiduciary sense because the insured can retain the ultimate risk of loss through a captive insurer as part of a reinsurance agreement. It’s a proactive risk management strategy because the insurer writes a policy to cover a specific risk. However, the risk is then surrendered to the reinsurer.
Some experts have called insurance fronting executives ‘insurers in brokers’ clothes.’ No matter what they are labeled, the architects of these innovative strategies typically work in concert: captive management and insurance executives teaming up with private equity investors and holding companies. eMaxx is a leader in this field. For over 20 years, its team has brought the best in the business together to curate outstanding captive insurance fronting strategies for niche markets. These often hard-to-insure industries include energy, utilities, waste, recycling, transportation, towing, construction and crane & rigging.
According to Inside P&C, a market research firm that studies U.S. commercial and specialty lines, fronting growth has been “meteoric,” with premiums up 50%–increasing over 300% from 2014 to 2021. Yet, a recent article in The Self-Insurer noted that the insurance fronting arrangement is one of the most overlooked facets of a captive’s business dealings. It is arguably a necessity, on par with audits and taxes.
To be sure, this type of partnership is complex, yet the benefits of captive insurance fronting are many. This structure can produce revenue and increase premium. The ‘fronter’ essentially becomes the ‘backer’ by supplying the paper up front and profiting from the fees behind the scenes without burden of major risk. The contract with captive providers provides peace of mind in that companies are working with experts in their own risk—a much less dangerous alliance. This agreement also offers a new way for an insurance company to enter a new market.
One important issue to keep in mind when considering a fronting captive insurance partnership is claims management. This includes deciding which claims are considered and choosing a defense attorney if litigation ensues. If the fronter retains these rights, the captive owner has less say in this claims process.
At its core, fronting is a relationship, and the eMaxx family of providers is proud to offer this service among its many commercial programs. Contact a nearby broker or agent today to learn more about this proactive partnership can benefit your company.
