Written Premium
The total amount of premium income that an insurance company has contracted to receive from policies written during a specific period, regardless of when the premium is actually collected or earned. This represents the gross premium amount before adjustments for cancellations, returns, or reinsurance costs.
Example
“The insurance company reported $150 million in written premium for the quarter, representing all new and renewed policies issued during those three months, even though some policyholders hadn't yet paid their full annual premiums.”
Memory Tip
Written premium is what's 'written on paper' when policies are sold - it's the full amount promised, not necessarily what's been paid or earned yet.
Why It Matters
Written premium serves as a key indicator of an insurance company's sales growth and market expansion, helping investors and regulators assess the company's business trajectory. For consumers, understanding this concept helps explain why insurance companies may have cash flow challenges even when selling many policies, since written premium doesn't immediately translate to available cash for paying claims.
Common Misconception
Many people assume written premium equals the cash an insurance company has received, but companies often allow monthly payment plans, so written premium may not be collected for months. Additionally, some think written premium is profit, when it's actually gross revenue that must cover claims, expenses, and regulatory reserves, and others confuse it with earned premium, which is the portion actually earned as time passes on the policy.
In Practice
An auto insurer sells 1,000 annual policies in January at $1,200 each, generating $1.2 million in written premium. However, 800 customers chose monthly payment plans, so the company only collects $320,000 in cash that month ($400 from 200 annual payers plus $800 monthly payments from the rest). The written premium figure of $1.2 million appears on financial statements as contracted business, but the company must wait throughout the year to collect the remaining $880,000 while being obligated to pay claims immediately.
Etymology
Combines 'written,' referring to policies that have been formally documented or 'written' by the insurer, with 'premium' from Latin 'praemium' meaning reward or prize paid for protection.
Common Misspellings
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