The concepts of “gross written premium” and “insurance revenue” are fundamental to understanding the financial statements of an insurance company, and they each represent different stages of the insurance business’s income process.
“Gross written premium” (GWP) refers to the total premium amount that an insurance company records in its books during a specific period. This figure includes all premiums that the company has written, whether or not the payments have been received in full. It encompasses new policy premiums, renewals, and any additional premiums from policy adjustments during the accounting period. GWP reflects the company’s total potential revenue from all insurance agreements initiated in that period before any deductions or adjustments for reinsurance or cancellations.
On the other hand, “insurance revenue” represents the portion of the gross written premium that can be considered as earned within a particular financial year. Since insurance policies often cover one or more years, the revenue is ‘earned’ only as the risk period progresses. For example, if a policy lasts for twelve months and a premium is paid upfront, the insurance company will recognize the premium as income over the life of the policy through each accounting period. “Insurance revenue” accounts for the earned portion of the gross written premiums, reflecting the actual revenue and matching it with the period in which it provides coverage services.
The distinction between these two metrics is crucial for assessing an insurer’s financial performance and understanding its revenue recognition process. GWP offers insight into the business’s sales performance and growth prospects, while insurance revenue provides a more accurate picture of income that contributes to profit within the accounting period.
