Why your small business clients aren’t using their insurance

While most Canadian small business owners have commercial insurance, only half would actually use it in an emergency, finds a new survey from TD Insurance.

Misconceptions about insurance coverage appear to be behind the discrepancy, with some policyholders believing commercial insurance is only for major events.

“Though some may think that business insurance is exclusively for major emergencies, such as a hailstorm or fire, there are many situations that could compromise your earning power, depending on the nature of the business,” says a Sept. 3 press release from TD Bank Group. “For example, a restaurant may need to shut down due to water damage from a pipe bursting, or stolen tools may prevent an electrician from being able to accept jobs.

“Insurance policies are customized towards your business, with flexible coverage options dependent on factors such as your industry and other risk elements. These factors can help you understand the level of protection your business may need and why, as a business owner, you may find you need different types of coverages depending on your situation.”

TD Insurance’s survey of 400 Canadian small business owners and senior decision-makers found 94% of those polled have business insurance, but just 52% would use it in an emergency.

While insurance was still the top choice for small businesses to handle unexpected events by a narrow margin, many respondents are still reaching out to additional income sources, including credit cards (50%), bank loans (48%) and lines of credit (47%). More than one-third (36%) even say they would rely at least in part on loans from friends and family in an emergency.

The survey was fielded by Harris Poll Canada, and ran online from July 10 to July 15 on behalf of TD. Specific industries were targeted: contractors (no general contractors), real estate investors, restaurants, management consultants (business consultant/advisors), retail (grocery/convenience), and clothing retail.

Planning gaps

“The findings highlight an important gap in financial planning,” TD says in the release. “Insurance doesn’t just protect against loss – it preserves cash flow and provides critical liquidity when small business owners need it the most.”

Tang Trang, vice president of small business insurance at TD Insurance, says insurance isn’t a last resort, it’s a strategic safeguard. “When something goes wrong, your first call to protect the business you’ve built should be to your advisor,” Trang says. “If business owners are turning to outside financing, chances are they’re not getting the full value of insurance.”

According to survey results, economic uncertainty is now a top concern for Canadian business owners, with nearly one-third (32%, up from 29% last year) citing increasing expenses as their top challenge.

“The need to control cash flow combined with misconceptions around utilizing their insurance could be keeping business owners from safeguarding their business and using their unique policies effectively,” TD Insurance cautions.