How Insurance Works Insurers 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. 4 Steps in the Insurance ProcessYour insurance company estimates an annual cost or premium to accept the risk of covering your home, business or car. Premiums are based on how much money insurance companies think they will need to pay for the coming year's claims.On a monthly or annual basis, you pay a premium to your insurer for assuming this risk on your behalf.Your insurance company puts all premiums into one large pool. Your insurance is an annual contract, so the pool operates for only one year at a time.Your insurance company uses the pool of many premiums to pay for the losses of the few who make claims in that year.What Happens After a Major Loss?Insurance companies manage the pool of premiums to ensure there is sufficient funding available in the event of a large claims situation. An example of this could be multiple claims after a natural disaster such as the massive 2013 flooding in Alberta for which claims are still being estimated and paid. The 1998 ice storm that hit parts of Ontario, Quebec and New Brunswick which resulted in approximately 700,000 claims for damage totalling $1.4 billion.What Will Be Covered?Insurance pays for only the insured losses described in your contract. It is very important that you read your policy and/or talk with your insurance representative about what you are covered for and what you're not. Insurance will not pay for every problem that you may encounter, nor is it meant to cover regular home maintenance. Insurance is generally intended – and priced accordingly – to help you cope with the financial consequences of unpredictable events that are sudden and accidental. If, for example, you live on a floodplain by a river, flooding of your property in the spring is not sudden or accidental; it is inevitable and, therefore, potentially uninsurable.Learn more about insurance options for your home, vehicle or business. Related ServicesBuyer 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.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.