Premium payment clause (premium warranty)
A London market clause that sets a deadline for the broker to pay the premium and lets underwriters terminate cover if it is missed, a sanction long automatic.
In the London market, premium does not pass directly from insured to insurer: it goes through the broker, which collects it and passes it on to the underwriters on the slip. The premium payment clause sets the deadline for that transfer, often 30, 60 or 90 days after inception. In its historical form as a warranty, missing it automatically ended cover at the deadline, even if a loss occurred afterward and even if the delay was the broker's rather than the insured's. The severity of that sanction, together with the 2015 reform of warranties, led the market to prefer premium payment clauses drafted as conditions, under which expiry of the deadline allows underwriters to cancel cover with notice, rather than making it disappear by itself. For the insured, the clause is a reminder that paying premium to its broker is not enough if it is not passed on; for the underwriter, it is the cash discipline tool of a market where premiums circulate through intermediaries.
Textbook case: a policy requires premium to be paid to underwriters within 60 days. On day 61 nothing has been received. Under the old warranty, cover would have ended by itself; under the modern condition clause, underwriters send a 15-day notice of cancellation, during which the broker settles the payment and cover is maintained.
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