What Does Fronting Company Mean?
A fronting company is a business entity that sells an insurance product but transfers the risk to another company. It is able to do so because the company that takes on the risk is not licensed to sell a similar product in that area.
Insuranceopedia Explains Fronting Company
"Fronting company" takes its name from the definition of front, meaning that it conceals the controlling agent. In this case, the fronting company's role is to legalize the business operations of another insurance company, or the re-insurer. The re-insurer is not allowed to do business in a certain location, but the ceding company is. When the re-insurer takes on a risk, the fronting company makes money through commissions from insurance sales. The only risk that the fronting company is exposed to is the possibility of the re-insurer failing to pay coverage, in which case the fronting company would have to pay.