What it means
When an insurance company sells a policy, the total price agreed upon is recorded as Gross Written Premium. This figure serves as the primary metric for measuring commercial growth and market share within the insurance sector.
It shows how successfully a business is selling its products and attracting new customers, acting as the starting point for all insurance accounting. It is important to remember that Gross Written Premium is not the same as revenue actually earned by the company.
Since insurance policies usually cover a future period, often twelve months, the insurer collects the money upfront but earns it gradually each day the policy remains active. The remaining unearned portion is held as a liability on the balance sheet until the coverage period passes.
Furthermore, this figure does not account for reinsurance, which is insurance that insurers buy for themselves to manage large risks. When you deduct the cost of reinsurance from the gross figure, you get Net Written Premium.
This distinction helps managers understand how much risk the company is actually keeping on its own books versus passing on to third parties. In practical terms, non-finance managers in insurance or related fields look at Gross Written Premium to track sales performance, set targets, and evaluate commission structures.
However, relying on this metric alone can be misleading. A company might rapidly grow its top-line sales by writing policies for risky customers, which could lead to heavy claims payouts later.
Therefore, it must be analysed alongside claims history and profitability measures.
In practice
Real-world examples.
Example
TechShield Insurance sells 1,000 cyber-security policies to start-ups at an annual cost of GBP 1,200 each. The total Gross Written Premium for this product line is GBP 1,200,000 for the year.
Example
FleetSafe Logistics insures 50 delivery vans for a local courier firm at GBP 600 per van per year. The Gross Written Premium recorded for this single SME client contract equals GBP 30,000.
Example
A marine insurer writes a single cargo policy for a global shipping enterprise covering a high-value voyage, charging a premium of GBP 500,000, which immediately boosts that period's gross total.
Think of it
“Think of Gross Written Premium like a gym membership business recording the total value of all annual contracts signed in January, even though customers pay monthly and use the facilities all year.
Formula
Calculation
Gross Written Premium = Total Value of All Policies Invoiced to Customers During the Period
Example:
If an insurer issues 200 home insurance policies at GBP 400 each, and 50 commercial property policies at GBP 2,000 each:
Home policies = 200 x GBP 400 = GBP 80,000
Commercial policies = 50 x GBP 2,000 = GBP 100,000
Gross Written Premium = GBP 80,000 + GBP 100,000 = GBP 180,000Case study
Seen in the real world.
Oakwood Insurance, a mid-sized provider of commercial property coverage, wanted to expand its market share. During the first quarter, the sales team launched an aggressive marketing campaign aimed at retail businesses. By offering competitive rates, they successfully issued 500 new shop policies at an average annual cost of GBP 2,000 each. This generated GBP 1,000,000 in Gross Written Premium for the quarter, delighting the executive board who celebrated the top-line sales growth.
However, the Chief Financial Officer urged caution. Because this was Gross Written Premium, the money had not yet been earned, and none of the reinsurance costs or potential shop fire claims had been factored in yet. Furthermore, out of the GBP 1,000,000 collected, GBP 250,000 was immediately ceded to a reinsurer to share the risk, leaving a Net Written Premium of GBP 750,000. Additionally, since the policies started in March, only one month of revenue could be recognised in the first quarter financial statements, leaving the rest as unearned premium liability.
By month six, a harsh winter storm caused multiple retail clients to file property damage claims. Because Oakwood had focused heavily on growing its gross top-line without carefully screening the risk profiles of the new shops, the payouts were higher than expected. The case study highlights why managers must never treat Gross Written Premium as actual profit or even final revenue.
Watch out
Common mistakes.
- Treating Gross Written Premium as cash profit available to spend immediately.
- Confusing written premium with earned premium, which represents actual revenue recognised over time.
- Ignoring the cost of reinsurance, which reduces the actual risk retention and net income of the firm.
Questions
People also ask.
Why is it called 'written' premium?
It gets its name from the historical practice of writing the insurance contract details and premium amount into a ledger by hand.
Is Gross Written Premium subject to Value Added Tax (VAT)?
In many tax jurisdictions, including the UK, most insurance premiums are exempt from standard VAT, though they may attract an Insurance Premium Tax.
How does Gross Written Premium differ from Net Written Premium?
Gross Written Premium includes all policies sold before paying for reinsurance, while Net Written Premium subtracts the cost of reinsurance.
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