Fronting insurance and its impact on the development of insurance in Serbia


General globalisation has set new challenges in all segments of the society for both the state and insurers. Globalisation brings with it the opening and deregulation of the insurance market. However, there are still numerous countries with the laws that prevent foreign insurers from operating directly at their markets. Aiming at overcoming the above-mentioned barriers with their global property insurance programmes, the companies are directed to services of local insurers holding permits for insurance operations issued by the competent supervision authorities of the country in which the property is located.
Fronting insurance is the agreement concluded between the companies acting as the insurer for the insured parties, but the main portion of up to 100% of risk is transferred onto third persons, namely one or several reinsurers. The insurer from abroad is entitled to insure directly the property of companies in the countries that liberalised insurance operations. However, a large number of countries protect their insurance markets and property insurance in these countries requires the insurer to hold the licence of the competent supervision authority, namely it has to be registered for conducting of insurance operations. In such cases, the insurer from abroad has to co-operate with local insurers, namely licensed insurers in the relevant country. Local insurers conclude the agreement with the insurer from abroad on implementation of a global insurance programme, which makes the insurer from abroad the insurance leader, and local insurers become fronting insurers. Local insurer concludes the insurance policy with the insured party, but the largest portion of risk or even the entire risk is transferred onto the insurance leader as its re-insurer, while it is paid appropriate commission for its part of work.