If it is done properly, you are not. If all you were doing is paying a premium into a fund in a bank and hoping your losses didn’t exceed the fund, then yes, it would be very risky. If, however, the program is structured properly, using a licensed admitted insurance company to act as the fronting company who actually issues your policy, and if a financially strong reinsurance company is used to insure the catastrophic losses, the risk is minimal. Under this concept, the assumption of risk occurs only in the smaller, predictable layer. By cutting fixed costs and earning investment income, financial risk is reduced, and the bottom line is enhanced.
