Insurance Premium Allocation The premiums of many policyholders pay the claims of the few who suffer a claim. Insurers put premiums toward a mix of claims costs, investments and operational expenses.There are some common misconceptions about what insurance companies do with the money they collect in premiums. Some believe it sits in an account until they make a claim. Others think that premiums pay for claims that have already happened. Neither of these is true.Most of your premium dollar goes to pay claims one way or another. For example, if you suffer a loss, a portion of your premium dollar and those of several other policyholders finds its way back to you, to help you recover. What Happens To Your PremiumsIn insurance accounting, money is always moving. Insurance companies settle claims, and pay taxes and other business-related costs (such as salaries, equipment and rent) on a daily basis.Insurers set money aside so they can respond quickly to disasters. This is known as a legal reserve, which insurance companies are required by law to maintain. This guarantees that an insurer can pay a large number of claims within a short period of time. Prudent Insurance InvestmentsInsurers are among the most careful investors in Canada. On average, approximately three-quarters of their investments are in government bonds.To ensure that insurers can pay claims, the federal government makes certain the industry’s investments are low risk. Insurers strive to maintain portfolios that allow for quick liquidation of investments to pay claims.Why Do Insurance Companies Invest The Money?Your insurance company holds your premium until it is needed to pay claims. By investing the money and making a return, the company can offset the cost of claims. This means it can charge you less than you would otherwise pay. In some lines of business, claims can arise years after the policy expires. This requires diligent financial management so such claims can be paid.INSURECONOMY – An Economic Forecast for InsuranceINSURECONOMY reports present the results of an IBC economic impact and future growth study of a province's high-value insurance sector. The report is available in Ontario, New Brunswick and Nova Scotia. The Conference Board of Canada and Jupia Consultants developed these reports. Understanding InsuranceLife is a risky business. Sometimes those risks hit home – a car collision… your basement suffering water damage… your business interrupted by vandalism. At times like these, insurance is there to help us recover, get us back on our feet and provide peace of mind. Related ServicesHow Insurance WorksInsurers use a pool of many premiums to pay for the home, auto and business losses of Canadians unfortunate enough to experience a loss. You are covered for losses outlined in your contract only, not for predictable events.Buyer BewareInformed buyers carefully review their insurance policy and policy limits. Know what to look for when reviewing all sections of auto, home or business policies.How Premiums Are CalculatedWithin reasonable limits, some of which are prescribed by law, your auto, home and/or business insurance premium is calculated to reflect the probability that you will suffer a claimable loss.Where Premiums GoThe premiums of many policyholders pay the claims of the few who suffer a claim. Insurers put premiums toward a mix of claims costs, investments and operational expenses.Insurance MythsLike any industry, a variety of myths surround insurance. Consumers of auto, home and business insurance may have misconceptions about policies and coverage as well as how the industry operates. Learn some key facts about the Canadian insurance industry.ReinsuranceLike other businesses, insurance companies, require protection against risk. Insurers buy insurance from another insurer to reinsure risks they assume. The additional insurer is known as a reinsurer. Useful LinksAuto InsuranceRequired by law across Canada, auto insurance covers the owner/driver, passengers, pedestrians and property affected by a vehicle collision.Buying Home InsuranceAs a homeowner, you need to insure your house for replacement costs so that in the event of serious damage or destruction you have adequate coverage. Be sure to keep your home insurance current by reporting material changes or upgrades.Business Insurance CoverageInsurance protects you from losses that may pose a significant threat to your business operations. A major loss to one organization may be a trivial loss to another. When selecting coverage, deductibles and policy limits, there are many factors to consider.Insurance VendorsInsurance is a significant financial investment so it’s worthwhile to learn about your buying options. You can buy insurance from a broker, agent or direct writer.