Fronting Agreement Popular With Captives
A fronting Agreement covers two types of “foreign” companies and insurers. In general terms, and usually for Workers Comp purposes, one insurer produces a policy for a third party, but all of the losses are the responsibility of a second insurer. This is, of course, a fee based arrangement.
This agreement provides a solution when a employer’s provider is not “admitted” to do business in a certain state, but the employer needs coverage there. The employer’s insurer enters into a Fronting Agreement with an “admitted” insurer to write the policy, again for a fee. If there are any claims against the policy, the employers original insurer bears all liability.
Most states have very specific rules on these financial arrangements.
Captive insurers often use these Fronting Agreements when they are not “admitted” in all states. Self-insureds often use Fronting Agreements to satisfy financial or statutory requirements.
As we all know, the business of Workers’ Compensation is complex at best. Fronting policies are, to say the least, complicated and should be examined thoroughly. Even though they can take on any number of forms, the one common denominator is that the claims are still paid by the insured.
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