Small businesses in Ontario faced sharper premium increases than mid-market firms, said Russell L. Philpott (pictured), executive vice president at Staebler Insurance.
“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 said. While the actual dollar amounts were smaller, the percentage impact was heavier. Larger firms often outgrew their premiums as revenue expanded, meaning insurance costs represented a smaller portion of their business. In contrast, companies without scale absorbed increases that eroded profitability, as premium costs made up a greater share of their overall expenses.
That pressure was made worse by what Philpott described 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. And it's a struggle to find them offers, quotes, coverages,” he said. With few competitive forces at work, owners had little room to manage costs. Raising deductibles, once a standard option, offered limited relief. “They're just oftentimes seen as not worth it,” he said. For some, the only option became cutting back coverage – an approach he described as “a very risky endeavor, that starts to be a good money after bad type of paradigm.”
Affordability challenges have shown up in rising cancellations, particularly since COVID. Staebler tracked a jump in first-year cancellations, often linked to non-payment of 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 pretty significantly, post-COVID,” Philpott said.
The cycle quickly became self-reinforcing. “If you've got these cancellations for non-pay, it's going to further restrict your options,” he said. Carriers often removed monthly payment plans and required premiums in full, leaving businesses stuck with less choice and more financial strain. “It is a bit of a negative cycle there, where they're in a financially tricky situation. And it's made worse by less market choice and fewer payment options,” he said.
Climate pressures have added another layer of difficulty. Water deductibles, sewer backup sublimits, and temporary moratoriums during wildfires or severe weather events have become more common, narrowing protection just as risks were rising. Philpott also pointed to reduced insurer capacity across commercial lines. Subscription policies, once a fallback solution, have become harder to arrange. “We have seen a bit of a reduction in capacity in a lot of cases,” he said. “The more traditional solution for that problem is also kind of going away.”
Cyber insurance carries its own hurdles. 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 in order to be qualified for quotes,” Philpott said. Even when coverage has been available, terms have tightened. “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.
Automation in underwriting offers efficiency but also shut doors for firms that fall outside standard parameters. “Some of the increased automation and technology in the small business space just kind of leaves you in a paradigm where either it fits the boxes that we're checking on the screen, or it doesn't, and if it doesn't, then it's usually a decline,” Philpott said. Systems were not always able to account for context. “Sometimes [they] can just make a de facto assumption that any claims are indicators of behavior, and indicators of future claims happening again... regardless of the nature or details of that claim,” he said.
Looking ahead, Philpott warned that the real issue was not simply 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,” he said.
The industry’s instinct had been to move quickly to exclusions. “There is sort of a posture, it seems, that when these new emerging risks come in, they are excluded rather rapidly,” he said.
Communicable disease exclusions after COVID and broad “forever chemical” exclusions show how fast protections could vanish. For businesses on claims-made policies, the consequences have been even harsher. “Even if an insurer is only adding exclusion now, in light of something new, if you're on a claims-made policy, that can effectively mean that you never had the coverage in the past,” he said.
Philpott underscored the pressure point facing Ontario’s small firms: they were 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 said.
