Glossary · Insurance agency commissions
Written vs earned premium
Written premium is the full premium on policies issued or changed in a period, while earned premium is the part of it that corresponds to coverage already provided.
What it means
A twelve-month policy written on January 1 counts its full premium as written on that day, but the premium is earned gradually, a twelfth each month, as the coverage runs. The part not yet earned is the unearned premium.
The two measures are used for different purposes. Agency revenue and most commission calculations follow written (or collected) premium. Insurer accounting and loss ratios typically use earned premium, which is why profit-sharing formulas often refer to earned premium and incurred losses.
How it shows on a commission statement
Monthly commission statements are usually based on written premium for each transaction, or on premium collected if the carrier pays as collected. Earned premium mostly shows up in contingent commission worksheets and carrier production reports, not on the monthly statement.
Example
- 12-month policy written January 1
- $2,400.00
- Earned by March 31 (3 of 12 months)
- $600.00
- Unearned on March 31
- $1,800.00
Common mistakes to check
- Comparing a statement to a management system report that uses the other basis.
- Reading a carrier production report in earned premium as if it were your commission base.
- Checking a contingent loss ratio against written premium when the agreement uses earned.