Do small businesses have enough Cat coverage?

The majority of Canadian small business owners are concerned about natural disasters impacting their businesses, but many aren’t aware of what their insurance policies do or don’t cover, says Rates.ca, a digital marketplace offering insurance and financial products.

This knowledge gap offers an opportunity for brokers to discuss coverages and business considerations with clients so they can close gaps and cover the most pressing perils.

Ninety-one percent of Canadian business leaders are worried about urban climate disaster, and 93% are worried their businesses will be impacted by extreme weather, according to KPMG data cited by Rates.ca.

Commercial insurance losses exceeded $1.7 billion in 2024 — the costliest year for commercial insurance losses in nearly a decade, data from Insurance Bureau of Canada shows. With frequency and severity of Cats intensifying year over year, small businesses owners can’t count on these loss figures to go down.

“It’s crucial that small business owners understand what their insurance policies cover and what they don’t, especially when it comes to extreme weather events,” says Maz Moini, Rates.ca commercial insurance expert.

“Many consumers mistakenly think that a standard commercial insurance policy covers everything that could possibly happen. Work with a broker to understand the risks your business is exposed to in the scenarios that are most likely to occur, whether it be flood, fire, earthquakes, hail, tornadoes or hurricanes.”

Rates.ca recommends several steps small business clients can take to address their concerns about natural disaster impacts.

The first is to be aware of the major perils in the area where their business is located.

From there, brokers can help clients understand whether their policy does or doesn’t cover their biggest perils and add any necessary endorsements.

Next, clients should also consider their peril-specific coverage. This protects businesses against specific natural disasters such as windstorms (e.g. tornadoes, hurricanes etc.), earthquakes and subsidence, or water-related events such as floods.

“For example, coverage for damage from floods typically doesn’t cover damage from a sewer-backup, which requires a specific endorsement to be added,” writes Rates.ca.

Next, clients should review and understand their policy coverage limits and deductibles, ensuring they match the amount of coverage they’d need in the event of a Cat loss.

“While a business owner running on tight margins may see value in higher deductibles for a lower insurance premium, in the event of a claim, a deductible that is too high could prove devastating at an already challenging time,” Rates.ca writes. “For example, earthquake insurance coverage often carries a large standard deductible, and businesses in earthquake-exposed areas can explore deductible buy-down coverage.”

Lastly, brokers can assist clients as they shop around, giving them coverage options before renewing with their current insurer. Since insurers evaluate risk differently, business owners can access different limits, products or premiums from one insurer to the next.