If you own a home, run a business or drive a car, insurance is part of your life. But despite the fact that millions of Alberta residents hold one or more insurance policies, many people don’t understand how insurance actually works. To get the most out of your policy, and to get the best available coverage at an advantageous cost, it’s a good idea to educate yourself on the technicalities of insurance in Alberta.
How Insurance Works
When you buy insurance in Alberta, you’re essentially pooling your money in with that of other policy holders. This pool of money is used to pay out legitimate claims, and because there are usually far fewer people making claims than there are paying into the total pool, insurance providers are able to cover the financial fallout resulting from accidents, injuries and property damage.
Why Premiums Are Calculated on an Annual Basis
In essence, an insurance policy is a contract between you, the policy holder, and the insurance company. According to the terms of this contract, you agree to pay your premiums, with the money going into the pool used to cover claims. In return, you receive legally binding protection that provides financial benefits if losses or liabilities result from activities covered by the policy.
These contracts run on an annual basis, because insurance companies need to constantly reassess the situations of individual policy holders to see if they are presenting greater or lesser risk. Insurers determine risk by calculating the likelihood of a particular policy holder making a claim. The more likely you are to make a claim, the higher your premiums will be.
Consider the following situations:
- If you are a motorist who has gone accident-free, you’ll be considered a relatively low risk. However, if you are involved in a string of at-fault collisions over the course of a year, your insurance company will see that your risk profile has changed, and your premiums will be adjusted accordingly.
- On the other hand, if that accident-free driver continues to post a spotless record year after year, the insurance company will deem that driver to pose a diminishing risk. As such, that driver can expect his or her insurance premiums to go down over time.
Insurance companies operate this way because they essentially have to predict how many claims they will need to pay out in a given year, and make sure they are generating sufficient income to cover those payouts. Otherwise, people submitting legitimate claims would be unable to collect insurance payouts to which they are entitled.
How Premiums and Rates Are Determined
Risk is the single most critical factor used to calculate premiums. However, there are other criteria used to evaluate insurance applications. Specific to vehicles, these include:
- The driver’s claims history and driving record
- The year, make and model of the vehicle being insured
- The location where the vehicle is kept when not in use
- Local crime rates
- Frequency and distance of vehicle use
Similarly, these are some of the major criteria used to determine home insurance rates:
- Local crime rates
- Fire risk
- The type of residence (detached, semi-detached, condominium, etc.)
- Primary and secondary building materials
- Proximity to emergency services
- The homeowner’s claims history
What If Your Claim Is Refused?
If you submit a claim you believe to be legitimate (according to the terms and conditions outlined in your policy) and the insurance company refuses to honour it, follow these steps:
- Ask for a written explanation from the insurer if one has not been provided
- Take your case to the insurer’s ombudsperson
- If that fails to remedy the situation, you can take your case to the General Insurance OmbudService (GIO) for evaluation by a neutral third party
- The Alberta Superintendent of Insurance provides further support if the GIO is unable to resolve your complaint
For more detailed information, refer to our article on what to do in the event of a claim refusal.
Trust Lane’s Insurance for All Your Coverage Needs
Lane’s Insurance is a leading Alberta-based brokerage, providing extensive resources and highly competitive rates on the essential protections you need as a driver, homeowner, renter, traveller or business owner. Lane’s Insurance also provides outstanding claims support to clients, dealing with insurers on your behalf and ensuring your interests are being protected.