Industry data shows that nearly 40% of Canadian small businesses are either underinsured, uninsured, or lack confidence that their existing policies would truly cover their needs.
According to TD Insurance vice-president of small business insurance, Tang Trang (pictured), that figure is a warning sign. “When they realize that they are underinsured, it might be too late,” he said. The problem isn’t just going without coverage altogether; it is carrying policies that look adequate on paper but fail to respond when a real-world crisis hits.
Consider a neighbourhood bakery. On the surface, it seems protected: it has property insurance in place. Then one night, a pipe bursts, flooding the kitchen and damaging equipment and inventory. The direct property damage may be covered, and the repairs eventually get underway. But the bakery has to shut its doors for six weeks.
During that downtime, the bills don’t stop. “They need to continue to pay for the employees, the payroll, they have rent to pay, the things that are still due,” Trang explained. Yet without the right coverage in place, none of those ongoing costs will be recouped through insurance.
This is where one of the biggest blind spots emerges: business interruption coverage. Trang pointed to earlier survey findings that highlighted business interruption as a major gap in many small-business insurance portfolios. Owners might assume they are protected for “certain things, but not for others,” only discovering those limits after they’ve filed a claim.
The result is a dangerous mismatch between perception and reality. Many entrepreneurs see themselves as resilient, focused on the long term and prepared to weather the unexpected. But as Trang notes, it’s often only when an emergency strikes – a flood, a fire, a prolonged closure — that they realize their policies don’t go as far as they thought. And by then, the financial shock can be existential.
“A claim can quickly threaten everything that they have built,” he said.
Trang says that risk is not evenly distributed across the small-business landscape. While the data he reviewed did not explicitly break out underinsurance by business age, his experience suggests that newer ventures are especially exposed.
“There is a learning curve when you think about the journey,” he said. Early-stage entrepreneurs often need basic education and awareness around the kinds of risks they’re actually exposed to, and how insurance fits into managing those risks. Over time, as their operations mature and they gain experience working with insurance advisors and policies, their understanding – and their coverage – tends to improve.
For many startups, though, insurance only comes into focus when it is forced onto the agenda. “When you think about a startup, the focus is on being successful in the business, driving revenue, driving customers,” Trang noted. “So insurance is almost a second thought.” It often becomes a “necessity because of requirements” – a landlord’s condition in a lease, a contract with a larger client, or regulatory obligations – rather than a proactive strategy to protect the business.
That’s where good advice can make the difference between learning the hard way and building resilience from the outset. Once business owners sit down with a licenced advisor, Trang said, they can be guided through best practices in risk management and the types of coverage that align with their specific operations.
He points to restaurants as a telling example. An experienced owner knows that training is crucial for staff – not just for service quality, but also to comply with alcohol-serving regulations and to mitigate risks in kitchens, dining rooms, and delivery operations. Proper measures, such as regular cleaning of kitchen exhaust ducts, are also key to reducing hazards. Without that experience, and without someone raising these issues early, owners can be blindsided. “If you don’t have that experience, then you’re exposed,” Trang said. “And you only realize that as a business owner when there’s a claim.”
Crucially, that claim may not even stem from obvious property damage. A slip-and-fall in a dining area, an incident involving a delivery driver, or an allergic reaction to a meal can quickly escalate into a third-party liability claim. For a young business with thin margins and incomplete coverage, that kind of event can be just as devastating as a fire or flood – and just as capable of threatening everything the owner has worked to build.
