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Where do my home insurance premiums go?

Home Insurance

By Smart Bug | January 25, 2016

One of the biggest myths when it comes to insurance companies is that they make a lot of money off of our home insurance premiums. But do you really know aboutinsurance company profits?

Insurance was created to share the cost of rebuilding after a disaster or cost of a claim across many people. The first insurance company wasLloyds of London. This company was started by a few shipping companies to share the financial loss of a ship sinking; spreading the burden and helping each company rebuild.

The Insurance Bureau of Canada reports thatfor every dollarthat you spend on your home insurance and car insurance a very profitable insurance company only gets to keep8 cents.

To create transparency we want to explain where your insurance dollars are spent.

Here is a typical example for every $100 that is spent:

$55 goes to paying customer claims (we are seeing this rise every year)

$21 goes to paying the operating expenses for the insurance company just to be in business

$16 goes back to the communities in the form of taxes.

$8 goes to the insurance companies as profit (Avg between 2007-2013)

With weather events on the rise we are seeing more claims being paid and the cost of these claims continues to increase. As an industry we have also seen a dramatic increase in the number of large catastrophic losses – mostly due to changing weather patterns. Here is a chart showing the upward trend of claim payouts over the last 10 years:

GRAPH_CatastrophicLosses.jpg

So what are insurance companies doing to help lower these costs? One of the greatest examples – in Alberta specifically – is thehail seeding programthat happens in the hail zones in Alberta. Most of the large insurance companies that operate in Alberta fund this program without government financial assistance. Next time you see a storm have a look to the clouds. Chances are if there is hail on its way you will also see small airplanes flying through the clouds seeding them with either silver iodide or dry ice. While it doesn’t eliminate hail it does help to minimize the production of larger more damaging hail.

There are a few things as a consumer that you can do to help keep your home insurance premiums as reasonable as possible. If you do have a concern with your insurance please do not hesitate tocall your broker. We are here to help find the coverage that you need at an affordable price.

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