How Does Insurance Work?

As certified insurance brokers, at Bow Valley Insurance we save you time by shopping around for the best coverage for you and your circumstances. Individuals and business owners are exposed to several types of risk, and insurance providers view these risks differently. The insurance brokers at Bow Valley Insurance understand how providers reach their assessment and their decision will be reflected in the cost of your premiums.

Here we answer the question, How Does Insurance Work? We explain the insurance underwriting process, what happens to your premiums, and why insurance can protect individuals and businesses so effectively.

Understanding the Underwriting Process

All insurance companies must accurately assess risk and make accurate cost predictions in order to set pricing. Although insurance companies use different approaches to the underwriting process, they all evaluate the specific risks associated with those they insure, as well as the likelihood they will file a claim. When insurance companies are successful in the underwriting process, they often provide better coverage, with lower premiums.

  • Risk Assessment — The initial goal of insurance underwriting is to assess and evaluate risk. Since individuals and different types of businesses are associated with specific types of risk, each insurance company establishes a set of statistical groups and subgroups, and applicants are assigned to groups based on specific risk criteria. Since different insurance providers use different criteria to evaluate risk, various insurance companies may view your specific risks very differently!

Unlike an insurance agent who works for one company, an experienced insurance broker understands your specific risks, and how individual insurance companies assess them. This means insurance brokers are better equipped to design an insurance policy that provides you or your Calgary business adequate protection.

  • Pricing — The ultimate goal of insurance underwriting is to establish a set of rules that allow companies to secure an adequate number of policyholders and charge them the right price. Based on the risks associated with statistical groups, underwriters must make an accurate prediction of the amount their company expects to pay out during the coming year.

How Does Insurance Work When it Comes to My Policy?

Your insurance policy is a legally binding, annual contract. Your premiums (and the premiums of all others insured by your insurance company) are based the amount your insurance company expects to pay out in claims during the coming year.

How Does Insurance Work When it Comes to Insurance Dollars?

Based on a 7-year national average from 2004 to 2010, out of every dollar collected by Canadian insurance companies:

  • 53.1 per cent went to policyholders who filed claims
  • 20.5 per cent paid the operating and regulatory expenses of the insurance companies
  • 15.9 per cent went out to the community in the form of taxes
  • 10.5 per cent went to insurance companies as profit

Calgary Insurance Premiums

Your premiums are calculated based the likelihood you’ll file a claim. Although a claims-free history normally generates a discount, policyholders who haven’t filed a claim don’t necessarily pay lower premiums. The statistical group to which you or your business belongs reflects the probability you will file a claim during the coming year. Working with a broker ensures you or your business is assigned to the right group, and that the specific risks you are exposed to are covered under your Calgary insurance policy.

Bow Valley Insurance Brokers Calgary: Comparing Insurance Policies for You

Now that you understand how insurance works, it’s easy to see why working with a broker with access to several insurance companies can protect you or your business with better coverage at a lower price!

Please contact us or request an online Business Insurance or Personal Insurance quote today!

After assessing your overall needs and specific risks, the brokers at Bow Valley Insurance will shop around for you. Since we do the shopping, we save you time! And since we understand the differences between the major insurance companies, we’ll get you the coverage you require for complete peace of mind.