Direct written premium is the total amount of insurance premiums an insurer collects before sharing any of that risk with reinsurers.
Understanding Direct Written Premium in Simple Terms
Direct written premium is a basic but important concept in insurance. It describes the total premium income an insurance company receives from policyholders during a certain period, without subtracting anything for reinsurance.
In other words, it’s the full amount customers pay for insurance policies, before the insurer transfers any part of the risk—or premium—to another company.
If you’re trying to understand how insurance companies make money or how big they really are, direct written premium is one of the first numbers you’ll see.
Breaking Down the Term
Let’s break down the phrase to make it easier.
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Direct means the premium comes straight from the policyholder to the insurance company.
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Written means the policies were officially issued during a specific time period.
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Premium is the amount paid for insurance coverage.
Put together, direct written premium represents all the premiums written directly by the insurer, before any adjustments or transfers.
A Simple Real-Life Example
Imagine an insurance company sells 1,000 auto insurance policies in a year. Each policy costs $1,000 in annual premium.
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Total premiums collected: $1,000,000
That $1 million is the company’s direct written premium.
Even if the insurer later sends part of those premiums to a reinsurer, the direct written premium number doesn’t change. It always shows the original amount written.
How Reinsurance Fits In
Reinsurance is when an insurance company shares part of its risk with another insurer, called a reinsurer.
For example:
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An insurer collects $1 million in direct written premium.
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It cedes $300,000 of that premium to a reinsurer.
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The remaining $700,000 stays with the original insurer.
Even in this case, the direct written premium remains $1 million. Reinsurance only affects other figures, such as net written premium, not the direct written premium itself.
This is why direct written premium is often described as a “gross” number—it shows activity before any risk-sharing adjustments.
Why Direct Written Premium Matters
Direct written premium is useful because it shows how active and competitive an insurance company is in the market.
Investors, regulators, and analysts often use this figure to:
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Measure company growth
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Compare insurers of different sizes
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Track market share
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Analyze trends across insurance lines like auto, home, or business coverage
A rising direct written premium usually means the insurer is selling more policies or charging higher premiums—both signs of expanding business.
Direct Written Premium vs. Other Premium Terms
It’s easy to confuse direct written premium with similar insurance terms.
Here’s a quick comparison:
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Direct written premium: Total premiums collected before reinsurance.
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Net written premium: Premiums kept after subtracting premiums given to reinsurers.
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Earned premium: The portion of premium that applies to coverage already provided.
Each number serves a different purpose, but direct written premium focuses purely on sales activity.
Why This Term Matters to Policyholders
Even if you’re not an investor or analyst, understanding direct written premium can still be helpful.
It gives you insight into how large and stable an insurer might be. A company with strong and consistent direct written premium usually has a solid customer base and active operations.
However, bigger isn’t always better—this figure doesn’t measure profitability or claims-paying ability. It simply shows how much business the insurer is writing.
Final Thoughts
Direct written premium is a straightforward but powerful measure of an insurance company’s business volume. It shows the total premiums received from policyholders before any reinsurance adjustments.
By understanding this term, you gain a clearer picture of how insurance companies operate and how money flows through the insurance system.
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