insurance

Written Premium

Written premium refers to the total amount of premium income that an insurance company has recorded for policies issued during a specific period, regardless of whether the premium has been collected or earned yet. It represents the gross premium before any adjustments for cancellations, returns, or reinsurance.

Example

“The insurance company reported $500 million in written premiums for the quarter, though not all of those premiums had been collected from policyholders yet.”

Memory Tip

Written premium is like writing an IOU - it's recorded on paper (or digitally) when the policy is issued, even if the money hasn't changed hands yet.

Why It Matters

Written premium is a key financial metric that helps investors and regulators assess an insurance company's growth and market share. For consumers, understanding this concept helps explain why insurers focus on policy sales volume and how their financial stability is measured.

Common Misconception

People often confuse written premium with earned premium, thinking it represents money the company has actually received and can use. In reality, written premium includes policies that may be cancelled or where premiums haven't been collected yet, making it less reliable than earned premium for measuring actual revenue.

In Practice

ABC Insurance issues 1,000 annual auto policies in January at $1,200 each, recording $1.2 million in written premium. However, by March, 50 policies were cancelled (reducing written premium by $60,000) and 100 customers haven't paid yet ($120,000 outstanding). The company has only earned $300,000 of the premium for the quarter (3 months of coverage provided), even though $1.14 million remains as written premium after cancellations.

Etymology

The term combines 'written' (meaning recorded in the company's books) with 'premium' from the Latin 'praemium' meaning reward, referring to the payment for insurance coverage.

Common Misspellings

writen premiumwritten preminumwritten primiumwritten preimum

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