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💵 '''Cash before cover''' is a contractual condition in insurance and [[Definition:Reinsurance | reinsurance]] transactions stipulating that coverage does not attach — or is not effective — until the [[Definition:Insurance premium | premium]] has been received by the [[Definition:Underwriter | underwriter]] or [[Definition:Insurance carrier | insurer]]. This principle inverts the more common arrangement where coverage incepts on a specified date and premium payment follows within agreed credit terms. The concept has particular prominence in the [[Definition:Lloyd's of London | Lloyd's]] market and in certain [[Definition:Reinsurance | reinsurance]] placements, though its application extends across many insurance markets globally wherever parties seek to eliminate [[Definition:Credit risk | credit risk]] on premium receivables.

🔄 Under a cash before cover clause, the insurer or reinsurer has no obligation to respond to a [[Definition:Insurance claim | claim]] arising during any period for which premium has not yet been paid. The mechanism is straightforward: the [[Definition:Insurance broker | broker]] or [[Definition:Policyholder | policyholder]] must remit payment before the risk transfer takes effect. In the Lloyd's market, the principle has historically been codified through market rules and the operation of the [[Definition:Lloyd's central accounting | central accounting system]], which requires premium to flow through [[Definition:Lloyd's broker | Lloyd's brokers]] and be settled before cover is confirmed. In broader commercial and [[Definition:Wholesale insurance | wholesale]] markets, cash before cover provisions appear as explicit policy or contract conditions. The clause can apply to the initial premium, to [[Definition:Installment premium | installment premiums]] (where cover lapses if a scheduled payment is missed), or to [[Definition:Reinstatement premium | reinstatement premiums]] in [[Definition:Excess of loss reinsurance | excess of loss reinsurance]] contracts, where the reinsurer's exposure is only reinstated once additional premium is received.

🛡️ For insurers and reinsurers, cash before cover is a powerful tool for managing [[Definition:Counterparty risk | counterparty risk]] and improving [[Definition:Cash flow | cash flow]] predictability. It eliminates the scenario where an insurer finds itself liable for a large loss while still chasing outstanding premium from a broker or cedant — a situation that has historically caused financial strain, particularly in long-tail or high-severity lines. From the [[Definition:Insured | insured's]] or [[Definition:Cedant | cedant's]] perspective, the requirement demands disciplined premium budgeting and timely payment, but it also provides certainty that coverage is definitively in force once payment clears. Regulatory and market practice norms differ by jurisdiction: while Lloyd's has long enforced cash before cover as a core market discipline, many continental European and Asian markets operate primarily on credit terms with separate mechanisms for managing premium debt. The trend in recent years has seen growing interest in tightening payment disciplines across global markets, and [[Definition:Insurtech | insurtech]] platforms have explored real-time premium settlement as a modernized expression of the same principle.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Premium payment warranty]]
* [[Definition:Credit risk]]
* [[Definition:Reinstatement premium]]
* [[Definition:Lloyd's of London]]
* [[Definition:Broker remittance]]
* [[Definition:Premium financing]]
{{Div col end}}

Definition:Cash before cover - Revision history

PlumBot: Bot: Creating new article from JSON