How Insurance Works: The Basics

How Insurance Works: The Basics

When many Canadians hear the word “insurance”, they usually think of their home or vehicle. They might phone the local broker or agent down the street, look for insurance online, talk to their friends or colleagues, or ask their family members. But do they really know what they are buying, or who they are buying it from? This article will provide a brief overview of the property and casualty insurance industry in Canada.

What is Property and Casualty?

The property and casualty (P&C) insurance industry in Canada provides coverage for all risks other than life, travel and health insurance. P&C includes insurance for automobiles (personal and commercial), properties (home, tenant, condo, or commercial properties) and liability insurance (whether personal or professional).

Auto Insurance in Canada

The most common insurance product, and the product with the largest dollar value by far, is auto insurance. Auto insurance is mandatory in all Canadian provinces and territories, and is regulated by the government. Some provinces, including Ontario and Alberta, have a private distribution system for auto insurance, meaning private corporations can sell insurance to the public. Other provinces, such as British Columbia, Saskatchewan and Manitoba , sell insurance products through the government. And in Quebec, there is a mixture of both public and private distribution. Ontario car insurance rates and Alberta car insurance rates must be approved by the provincial government by the insurance companies, whether they are increased, decreased, or stay the same.

How Car Insurance is Sold: The Broker Channel vs. Direct Channel

Auto insurance in Ontario and Alberta is sold in two ways, through the broker channel such as KTX Insurance Brokers, or through the direct channel like Co-operators. In the broker channel, insurance companies such as Intact and Aviva sell their products through brokers located throughout Ontario and Alberta. While the insurance company might have one large office in Toronto or Calgary, the brokers that sell their products are located in cities and towns across both provinces. Larger brokerages, since they have more clients and collect more premiums from those clients, may offer quotes from many insurance companies, while smaller brokerages might only have a few insurance companies to compare rates for their clients. Direct insurers do not use brokers to sell their products; instead they use their own agents and only sell their own insurance products. Brokers and agents are usually paid a percentage of the insurance premium as a commission, or charge a fee for their service.

More Than Car Insurance

Brokers and agents sell other products as well, including home, condo and business insurance. Some insurance companies offer a discount if they purchase more than one product from the same insurance company, such as home and auto together (usually called a multi-line discount). That said, while one insurance company might offer the best car insurance rate, that same insurance company may not offer you the best home insurance rate. While there are benefits of having both policies insured with the same insurance company, price might not be one of them.

Business insurance

Business insurance is similar to home and auto insurance in that the products can be sold by both brokers and agents. Many insurance companies will offer business insurance products, called commercial insurance, and these products are sold by class. Restaurants and hotels would be grouped under the hospitality class, plumbers and electricians would be grouped under the construction class, and apartment buildings and rental properties would be grouped under the realty class, as examples.

There are three types of commercial insurance companies

There are three types of insurance companies that sell commercial insurance products, and separating these types is done through risk tolerance, how much risk an insurance company is willing to take on. Many insurers will accept low-risk commercial classes such as painting and window washing as clients, the chances of these clients causing bodily injury or property damage to third-parties (called commercial general liability) is very low. Some of these same insurers may not be comfortable with medium-risk or high-risk clients, however. Medium risks may include roofing or welding companies, where the chance of injuring someone or causing property damage is higher than someone who washes windows. And high-risk companies, including crane operators, rail roads and plastic manufacturers, can usually only be insured by a select few insurers. The higher the risk, the fewer the number of insurance companies who will accept the risk.

KTX Insurance Brokers can provide quotes for most personal home and auto clients, as well as most commercial clients, in Ontario and Alberta. For further information regarding any of the topics listed above, or any insurance-related matters, please contact our office directly.


James Mior

James Mior

COMMERCIAL LINES MANAGER - James has managed the Commercial Lines department at KTX Insurance Brokers since February 2014, including Commercial Property/Liability, Commercial Auto/Fleet, and Commercial Customer Service. James obtained his RIBO licence in 2002, and has spent his entire career in Commercial Lines. Along with managing the commercial team, he also writes new business with standard Canadian insurers, as well as managing agents and Lloyd’s of London. He developed and still manages a successful I.T. insurance program, and has successfully placed coverage for thousands of clients in retail, general contracting, real estate, professional services, and errors & omissions for consultants. Unlike traditional brick-and-mortar brokerages, James leverages the technology of Kanetix to provide instant online insurance quotes for many business owners.

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