In a market where wages, turnover, and costs are all on the rise, Minimum and Deposit (M&D) premiums have become one of the most important and most misunderstood parts of the underwriting process. Handled well, M&Ds protect everyone involved. Handled and explained poorly, can result in unpaid adjustments, resulting in unpaid commission and leading to frustration for brokers, MGAs, and insurers alike.
What Are Minimum and Deposit Premiums?
An M&D premium is the minimum amount payable at the start of a policy, usually based on estimated exposures such as annual wages or turnover. It ensures that a base level of premium is earned even if the client’s actual figures turn out to be lower. At the expiry of the policy year, the insurer compares those estimates with the actual figures. Insurers would issue a premium adjustment – possibly a refund if exposure fell, or an additional premium if it increases. If an additional premium is due, it can be included in the renewal negotiations. This mechanism ensures that underwriting remains fair and sustainable: policyholders pay for the actual level of risk, and insurers maintain accurate rating discipline.
Why Misunderstanding Happens
M&Ds often cause confusion because they sit between underwriting, sales, and account management. Common issues include:
· M&D terms not clearly explained to policyholders.
· Underestimated exposures at quotation.
· Confusion over who collects adjustments.
· Friction when unexpected additional premiums arise post expiry.
When that happens, the result isn’t just admin, it’s lost income and strained relationships.
Customer Confusion and Perception
From the policyholder’s perspective, additional premiums raised after the policy has expired can feel like hidden charges. Without clear communication at the outset, a genuine adjustment to reflect higher wages or turnover can be mistaken for an error or a penalty.
That misunderstanding creates friction, delays payment, and in some cases, leads to complaints. Policyholders who don’t understand why an additional premium is payable are far less likely to pay promptly, which could affect risk performance and directly affects broker commission and income.
Clear, early conversations about how M&D premiums and adjustments work aren’t just good practice; they protect everyone in the chain. When brokers set expectations early, policyholders feel informed and confident that their policy reflects real-world changes, not surprises.
Who Collects the Adjustment?
Under most broker agreements, the broker acts as agent of the insurer, meaning they’re responsible for collecting and remitting premiums, including adjustments, whether or not the policyholder pays. If a policyholder refuses to pay:
· Any legal or debt-collection costs usually sit with the insurer.
· The insurer may deduct unrecovered additional premiums from future claims or worse still, void the claim.
· For insurers, this can also impact loss ratios and capacity relationships, as uncollected adjustments mean higher exposures for less premium.
Commission and Cash Flow
When adjustments go unpaid, the impact goes far beyond one policy. If the additional premium isn’t received:
· The broker loses commission on that amount.
· Any previously paid commission can be clawed back.
Example: A broker earns 20 % on a £30,000 minimum & deposit premium. At year-end, actual turnover increases, resulting in an additional £5,000 premium. If the policyholder refuses to pay and the insurer writes it off, the broker loses £1,000 in commission, and their cash flow takes the hit. Multiply that across several cases, and the loss of income/commission quickly adds up.
The Shared Responsibility Effective M&D management depends on transparency and teamwork:
Broker: Set realistic estimates, explain M&D terms clearly to the policyholder, and collect adjustments promptly.
Insurer: Provide oversight and ensure delegated partners monitor premium adequacy. Communicate M&D levels at the quote stage, define collection responsibility, and support brokers with reminders and guidance.
When everyone plays their part, M&Ds support fair pricing and sustainable underwriting – not friction and financial loss. Increases in wages and turnover, on most occasions mean an increase in exposure, justifying an increase in premium. At Gem Underwriting, we believe transparency is key to lasting broker partnerships. Our underwriting and operations teams work closely with brokers to ensure M&D terms are clear, adjustment processes are straightforward, and communication with policyholders remains seamless.
If you don’t collect it, you don’t earn it, and if you don’t explain it, you won’t retain it.
To discuss how we handle M&D premiums and negotiate AP’s at renewal stage or to explore our liability products, contact the Gem team today: admin@gemuw.com