What is Gross Written Premium? (GWP)

The exact definition of GWP “Gross Written Premium” is often shrouded in mystery.

Recently I needed to use a projected Premium Income figure and after many Google searches I failed to find the same definition across many sites; this is clearly a bit of a grey area, which I thought over at RiskHeads we could do some work to clear up.

It would be great to hear from any Brokers or Insurers regarding the definitions that they currently use as this does seem to vary depending on where you sit in the selling chain.

My initial thoughts were that we were looking for a figure that fully reflected the Income of an Insurer or Broker.

Gross Premium including Policy Fees and IPT?

On this basis I thought that Gross Premium including Policy Fees and IPT would be a good base point as it represents the Total Premium that the policyholder actually pays for the insurance.

It was fairly quickly pointed out that neither Brokers or Insurers would ever include IPT in this calculation as they only collect the tax and pass this on to the government – it is not income as far as either are concerned.

This seems to make sense but I wonder how a Broker then values his book of business?

In some ways Premium including IPT and Policy Fee would be a true reflection of the companies Turnover as it’s the income derived from their activities.

I am tending to think now that IPT is clearly not an item that should be included simply because it is not retained by either party.

Gross Premium including Policy Fees but excluding IPT?

This then raises the issue of whether Policy Fees should be included in the calculation.

These are direct income to the Broker but not to the Insurer so are we now looking at the definition being different for a Broker and an Insurer?

My feelings on this are that any Policy Fees are actual income which is kept and from a Brokers perspective they should be included.

This would then suggest that the value of the same contract is more to the Broker than the Insurer as they will not be ware what Policy Fees are being charged.

I have had some feedback that Policy Fees should also be excluded.

Having thought this through I wondered what would happen then if a Broker was rebating all of their Commission and was working for a higher fee than normal to the Client.

Surely this could not be excluded as the Policy Fee being collected is part of the payment, all of which is retained?

If it were excluded would this then not mean that the value of the contact was understated and where would the Policy Fees ever be represented in Turnover?

Conclusions – Agree?

At present I think my conclusion is that a correct definition for a Broker is Total Premium after any underwriting discounts, including Policy Fees but excluding IPT.

For an Insurer even though they were looking at the same contract their definition would be different and would be Total Premium after any underwriting discounts, excluding Policy Fees and IPT so that they can accurately assess loss ratios of Premium versus Claims.

I am sure there are many different opinions available and I would very much like to receive these and to create a general discussion on this rather cloudy issue.

Photo by kevin dooley

7 comments

  1. We are an internet broker who class GWP as Gross Written Premium after volume and underwriting discount but inclusive of IPT. Our accountant took a look time deciding how he wanted to represent it in our accounts but this is the way the chose.

    I suppose we are at the firing line of providing the policies in that we currently deal direct with the public and motor trade.

    1. Hi Jackie,

      This enforces some of my findings that even within the same company GWP is used in different ways.

      For example if its used as a calculation method for a fee or a charge made against the Agent or Broker then it nearly always seems to exclude IPT.

      However when stating the value of the same Agent or Brokers book of business it seems to get included again.

      I guess its one of those things where the better option is used but I would be very interested in further feedback on this from anyone that is using this term in different ways.

      Colin

  2. One of the difficulties faced here is the fact that a broker doesn’t really concern themselves with GWP from their own revenue recognition perspective. In fact, it is wrong for a broker to disclose GWP as revenue, although it can be disclosed in the notes to explain the basis for any brokerage income. For a broker the top line is actually Gross Broking Income which represents the brokers own share of the premium, so would always exclude policy fees imposed by the insurer and IPT, and any premium passed on to the insurer as risk premium. From an insurers perspective things get more messy, and having spent many meetings clarifying which version of GWP is being referred to I am clear that there is no single definition, it depends on who is asking. The original post appears to be looking for an accounting definition, which would exclude IPT but would include all other amounts receivable in relation to the risk underwritten. The question over fees arises because any fees received by a broker or insurer that are not directly connected to the policy of insurance are not GWP, these fees are definitely income but the insurer would possible recognise as other income or as “negative” brokerage, the broker would not recognise if passed directly on to the insurer (the broker is merely collecting agent for such monies and is potentially deriving no benefit), the broker would recognise “other income” if they derive benefit from these other fees to the extent of their share of such fees.

    For even more fun, try to establish the meaning of Net Premium……..

    Regards

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