Introduction
Imagine you’re at a party and someone asks you to pay up front for all the pizza you’ll eat over the next year. You pay, they write it down, and voila! That’s your “written premium” - only instead of pizza, it’s insurance, and instead of a fun party context, it’s serious business.
Definition of Written Premium
Written premium is the total revenue amount that an insurance company records for premiums on the policies it has issued within a particular period, without considering whether these amounts have been earned yet. It’s like the grand total of all the “I owe you"s from policyholders.
How Written Premium Works
Insurance is fundamentally about preparing for the ‘rainy days’ — quite literally if you’re talking about property and casualty insurance. When a policyholder pays their premium, the insurer scribbles this down as a written premium. This sum is the bread and butter, or rather the premiums-and-policies of insurance companies. It’s how they gauge the scale of their operations and project future earnings, hoping to cover claims, manage expenses, and yes, hopefully, bag some profit.
Written Premium vs. Earned Premium
Here lies the crux: all written premiums are not earned at the receipt. Earned premiums are those slices of the written premiums that represent the expired portion of the policy — basically, the part of the premium that’s done its job of covering risk. For example, if half your policy period has passed, half your written premium has ’earned its keep’.
Gross Premiums vs. Net Premiums
For the detail-oriented: Written premiums can be ‘gross’ (the whole pizza) or ’net’ (what remains after everyone’s had their slice). Gross written premiums are the total before expenses like commissions or reinsurance are deducted. Net written premiums are what the company really gets to deposit in its piggy bank after these deductions.
Special Considerations
The thrill of the written premium comes from its promise. It’s counted as revenue, yes, but it also holds possibilities — of claims made, risks managed, and financial stability sustained. It appears right at the top of an income statement, waving its figures proudly but also with the weight of obligation that comes tomorrow.
Further Insights and Humor
In the world of insurance, written premiums are like the hopeful New Year’s resolutions we jot down fervently — full of ambition and expectation. We aim high, write down big numbers, but the real success lies in how well we stick to the plan, manage the risks, and eventually turn those numbers into real, deserved earnings.
Related Terms
- Earned Premium: This is the portion of the written premium attributed to the expired part of the insurance policy.
- Unearned Premium: The part of the written premium corresponding to the remaining period of the policy.
- Gross Premium: The total premium amount before any deductions.
- Net Premium: The amount remaining after all deductions are made.
Suggested Books
- “Insurance Accounting: Insurance Coverage and Financial Reporting” by Ann Reinsurance
- “Risk Management and Insurance” by Scott Harrington and Gregory Niehaus
Written by Ivy Lede, your go-to financial humorist, on a sunny day when risks seemed low and premiums just a tad bit poetic.
