Facts About Car Insurance
The basic concept of insurance is actually quite basic. Funds from everyones’premiums pay for the losses incurred through claims. All payments are placed in a large pool. All claims are paid from that pool. There will be more people funding the pool than there are making claims against the pool funds. The 1998 ice storm that struck parts of Ontario, Quebec and New Brunswick resulted in an estimated 700,000 claims costing the insurance fund approximately $1.4 billion. Events such as these can strain the pool to it’s limits.

Insurance for insurance companies
In an event like this when funding is heavily burdened there is a security measure that then comes into play. They maintain a supplementary pool that insurance companies can access to pay claims. Some of your premiums are used by your insurance company to fund the reinsurance pool which is simply insurance for insurance companies.

Annual replenishing
Your insurance is an annual contract, so the pool operates for only one year at a time. Your premiums and the premiums of others are based on how much money the insurance companies think they will need to pay the coming year’s claims. Your premiums do not build up over the years.

How premiums are calculated
The cost of your premium is calculated based on the probability that you will make a claim. For people the insurance company believes are less likely to make a claim against the pool, premiums will be lower than those who have a history that indicates they are more likely to submit a claim.

Insurers consider many factors to help them determine the probability that you will make a claim. While it is true that past claims history is important, insurers prefer to use what they consider a more reliable indicator to determine how likely a person is to make a claim. The primary consideration is relative to your position within statistical groups that they have developed.

Industry earnings
In 2005, insurance companies paid more than $21 billion in claims while taking in $35 billion in premiums. The surplus revenue which in this case amounted to $14 billion, is used by the companies to pay salaries and taxes ($6.2 billion in 2005), and to cover the overhead costs of running a business. It is also used to pay the administrative costs of settling a claim.

Insurance pays for only those types of losses described in your contract. It is very important that you read and understand your policy. Talk to your insurance representative and learn exactly what coverage you are paying for. Insurance will not pay for every problem that you may encounter, and it certainly is not a maintenance contract.

You purchase insurance to counter the financial consequences of unpredictable events that are “sudden and accidental.” If you live in an area that has a history of flooding then flooding of your property in the spring is not sudden or accidental. It would be considered a high probability and for this reason would likely be considered uninsurable.