Frontage – most often involves the practice of an unlicensed insurer (or an insured with an insurance company) that issues a contract with a licensed insurer for the issuance of an insurance policy for regulatory or certification purposes. This insurer leaves because of a small or no loss, exposed to risk; instead, financial arrangements are made to manage and pay the receivables. The leading insurer generally receives 1% of the premium. The „linked place of residence“ is the state, territory or country in which an insurance-related insurance company is established, which also has the license of the insurance company and which has primary regulatory oversight. Liability insurance is an alternative to self-insurance, in which a parent company or parent company creates a licensed insurance company to cover itself. The main objective is to avoid the use of traditional commercial insurance companies that have volatile pricing and may not meet the specific needs of the business. By setting up its own insurance company, the parent company can reduce costs, provide difficult risks, have direct access to reinsurance markets and increase cash flow.  When a company creates a prisoner, it is indirectly able to assess the risks of subsidiaries, write guidelines, set premiums and ultimately return unused funds in the form of profits or invest them in future distributions of damages.  Captive insurance companies sometimes insure the risks of the group`s customers. It is another form of risk management that is becoming a more convenient and popular way for businesses to protect themselves financially while having more control over how they are insured.
[Citation required] If the parent company realizes a tax benefit from setting up an insurance company, it depends on the classification of the insurance, the company keeps a record. In the United States, the Internal Revenue Service (IRS) requires that risk allocation and risk transfer be available for a transaction to enter the „insurance“ category. The IRS has publicly stated that it will take action against captive insurance companies suspected of abusive tax evasion. A fronting company is a licensed insurer that issues an insurance policy on behalf of the prisoner without intending to transfer a risk. The risk of loss is retained by the prisoner with a compensation agreement. Fronting agreements allow prisoners and insurers to comply with financial liability laws imposed by many states, which require proof of a licensed insurer`s coverage.