Every day across the province, Ontario’s small businesses are threatened by rising insurance premiums, adding another burden to their already tight margins. From liability insurance to property and workers’ compensation, costs have surged in recent years. In many cases, this is outpacing both revenue growth and inflation. For many Ontario small business owners, these premiums are forcing tough decisions regarding staffing, benefits, and long-term viability. So, what exactly is causing this sharp increase in premiums for these businesses? Let’s take a closer look.
Ontario Small Businesses Facing Sharper Premium Increases
According to Russell L. Philpott, executive vice president at Staebler Insurance, Ontario small businesses faced sharper premium increases than mid-market firms.
“From a small business perspective, we certainly see a larger percentage of rate increase year over year in that space than we would in mid-market,” he told Insurance Business Magazine.
Though the actual dollar amounts were smaller, the percentage impact was much heavier. Larger firms are often outgrowing their insurance premiums as revenue expands. This means insurance costs accounted for a smaller share of their business. As a result, companies without scale absorbed increases that eroded profitability. At the same time, premium costs account for a larger share of their overall expenses.
Split Marketplace
According to Philpott, this pressure was made worse by what he describes as a “split marketplace.” “Our insureds either are in the bucket of being highly desirable and highly sought after from an insurance provider, or the opposite of that,” he explains.
As a result, it is more difficult for Ontario small businesses to find coverage.
“It’s a struggle to find those offers, quotes, and coverages,” he states.
With little competitive pressure, small business owners have little room to manage costs. Raising deductibles offered little relief. “They’re just oftentimes seen as not worth it,” he says. For some, the only option became cutting back coverage. This is an approach that he once described as “a very risky endeavour, that starts to be a good money after bad type of paradigm.”
COVID Pandemic Brought Affordability Challenges
Since the COVID pandemic a few years ago, affordability challenges have grown for Ontario small businesses. Staebler tracked a jump in cancellations the first year, often linked to people unable to pay their premiums. “We normally take that as an indicator about affordability, because, normally, a forced first-year cancellation is driven by a non-payment of premium. We’ve seen those rise significantly post-COVID,” Philpott said.
Since then, the cycle has only continued. Insurance companies will often remove monthly payment plans and require premiums in full. This leaves businesses stuck with fewer choices and more financial strain.
“It’s a bit of a negative cycle there, where they’re in a financially tricky situation. It’s made worse by less market choice and fewer payment options,” Philpott told Insurance Business Magazine.
Further Pressures Amongst Businesses
Another pressure on Ontario small businesses is climate change. Water deductibles, sewer backup sublimits, and temporary moratoriums during wildfires or severe weather events have become more common. With this came the narrowing of protection. With this, subscription policies, once a fallback solution, have become harder to arrange, according to Philpott.
“We have seen a bit of a reduction in capacity in a lot of cases,” he stated. “The more traditional solution for that problem is also going away.”
Cyber insurance also has its own issues for Ontario small businesses. Many small firms cannot meet the upfront requirements around multi-factor authentication, encryption, or data backup. “From an SME perspective, cyber challenges for the insurance product are usually underwriting requirements to be qualified for quotes,” Philpott said.
Even when coverage has been available, its terms have become tighter. “We’ve seen some policies that have modified their definition of data. If that information is not being sufficiently backed up or encrypted at the time, it won’t be considered as part of the data in question under the policy,” he said.
Looking Ahead: The Future of Ontario Small Businesses
When it comes to the future of small businesses, Philpott warns that the real issue is not new risks, but the loss of coverage altogether.
“I would frame it not as much of a coverage gap per se, but more of a coverage availability gap,” Philpott explains.
Communicable disease exclusions since COVID and broad “forever chemical” exclusions show just how fast protection can vanish. For Ontario small businesses on claims-made policies, the consequences are harsher than ever. According to Philpott, even if an insurer adds an exclusion now, in light of something new, you may never have had coverage in the past if you’re on a claims-made policy.
Philpott underscores the pressures that Ontario small firms are facing. They are being asked to pay more for less, with fewer options to adapt.
“Without the scale of the growth of business and/or market forces to drive down costs between different insurer offerings, the folks in the small business sector are getting a little bit squeezed,” he stated.
Though premiums for Ontario small business owners may be steep, they are still nothing compared to paying out of pocket when the unthinkable happens. Small businesses face a plethora of risks; therefore, having the proper insurance coverage is critical for saving money. If you’re in the market for new business insurance, don’t hesitate to reach out to isure today!
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