The Canadian Federation of Independent Business (CFIB) is once again sounding the alarm over the growing concerns of small and medium-sized enterprise (SME) owners about insurance costs. In its report, Insuring Main Street - An analysis of Canada’s small business insurance market, released on Dec. 11, the CFIB highlights that three insurers cover more than 6 out of 10 entrepreneurs. 

Insurance costs have become one of the main pressures on their operating expenses. About 62 per cent of survey respondents identified insurance as one of the costs causing the most harm. It ranks second among concerns, just behind payroll taxes. 

“What types of input costs are currently causing difficulties for your business?” Some 68 per cent of SME owners participating in the survey flagged insurance costs. Historical data from the CFIB’s Business Barometer shows an average of 49 per cent for the same question. 

The CFIB previously reported entrepreneurs’ concerns in November 2020, when larger increases were weakening businesses hit by the COVID-19 pandemic. Similar findings were reported in August 2021 and in August 2022. 

Double-digit increases 

More than half of respondents reported their premiums had increased by 10 per cent or more over the past two years. For a typical SME with the three main types of business insurance—property, auto, and general liability—a 10 per cent increase in premiums represents an average bill of $1,500. 

About 58 per cent of respondents had purchased all three products at the time of the survey. The median bill for these three products totals $15,850, broken down as $6,000 for property, $5,000 for auto, and $4,850 for liability. 

For some industries, this median premium is much higher. Liability policies are significantly more expensive for SMEs in construction, manufacturing, and transportation. 

“Commercial insurance provides a safety net for small businesses and protects them against financial losses, property damage or natural disasters. But it's getting harder and costlier for small businesses to get coverage, at a time where they're already grappling with many other cost increases. In certain provinces, businesses also have to pay a tax on all insurance products plus another tax on premiums. This can quickly add up and contribute to the financial burden small firms are facing,” says Jasmin Guenette, Vice-President of National Affairs at CFIB. 

Among the factors behind this growing concern, the CFIB report suggests some probable explanations influencing risk assessment and pricing: insurance market dynamics, more frequent natural disasters, the regulatory framework, and the economic context. 

Dissatisfaction 

Nearly half of business owners say they are somewhat dissatisfied or very dissatisfied with the insurance options available in Canada. The level of dissatisfaction varies little from the national average across different business sizes. 

This dissatisfaction is particularly pronounced in the accommodation and food services sector (68 per cent), arts, entertainment and information (67 per cent), and transportation (66 per cent). 

Many owners report frustration with the limited options, although they generally say they are satisfied with customer service. About 69 per cent of business owners are overall satisfied with customer service. Meanwhile, 32 per cent are dissatisfied with the ease of the application process for obtaining or renewing commercial insurance. 

Some 56 per cent of respondents renewed their policies with the same insurer without shopping around. Among the 36 per cent of entrepreneurs who said they explored the market, three out of four kept the same insurer. Only one-third of SMEs that shopped around received at least three options from their broker. 

The SMEs who were limited to only one option were especially numerous in manufacturing (48 per cent), transportation (44 per cent), and accommodation and food services (43 per cent). 

Market analysis 

The report shows that three insurers serve more than 61 per cent of CFIB-member SMEs: Intact (33 per cent), Northbridge (17 per cent), and Aviva (11 per cent). These companies are followed by Co-operators (9 per cent) and Economical/Definity (5 per cent). This means three in four entrepreneurs work with just five insurers. 

The CFIB notes that this market share distribution is not the same as in the overall business insurance market, which includes large corporations and non-profits. 

The report also breaks down market share by insurer according to the industry sector of the surveyed SMEs and by province. In every province, three insurers account for more than 50 per cent of the SME insurance market. 

Intact ranks first in every province except Saskatchewan and New Brunswick, where SGI and Northbridge take the top spot, respectively. 

Eight out of ten SME owners work with an insurance broker. The CFIB also offers its members a savings program in partnership with Northbridge through independent brokers. 

Newfoundland and Labrador has the highest dissatisfaction rate with the cost of insurance (84 per cent). The premium tax and sales tax on insurance in the province are among the highest in the country, according to the report's authors. 

The vast majority (83 per cent) of survey respondents had not made any claims in the past 12 months. “Other factors are also contributing to higher premiums,” the report notes. 

As a result, rising premiums and other costs are forcing entrepreneurs to make difficult choices, the CFIB says. Nearly one-quarter of them have even reduced their overall insurance coverage. This trend is particularly notable in the agriculture, natural resources, and food services sectors. 

Recommendations 

The CFIB is making recommendations to governments, insurers, and SME owners. It calls for provinces and territories to completely eliminate the premium tax and retail sales tax on all insurance products for SMEs. The CFIB also suggests encouraging alternative insurance options such as captive insurance companies and cooperatives. 

Recommendations for insurers include updating the Consumer Code of Rights and Responsibilities to include policies specific to SMEs. The CFIB is also calling for greater transparency from insurers about the factors behind premium increases at renewal. 

The CFIB encourages entrepreneurs to seek advice from insurance professionals, shop around, inquire about group discounts, better understand their coverage, invest in risk management tools to limit claims, and train their staff. 

Methodology 

The research report was prepared by analysts Alchad Alegbeh and Michelle Auger. Between March and May 2024, the CFIB conducted a special survey of SME owners to learn more about their experiences with commercial insurance as well as personal insurance. Life and health insurance were excluded from the survey. 

The CFIB’s omnibus survey conducted in August 2024 asked business owners about various issues, including insurance. A total of 3,676 respondents participated in the insurance survey, and 2,340 SME owners responded to the omnibus survey.