Canadian small and medium-sized enterprises (SMEs) are operating in an increasingly uncertain environment that’s marked by structural volatility, softening consumer demand, inflationary price pressures and mounting sector-specific trade challenges.
In early 2025, the Canadian Federation of Independent Business (CFIB), which represents over 100,000 SMEs across the country, saw its Business Barometer’s long-term optimism index reach its lowest point since April 2020 (the early days of the COVID-19 pandemic) when trade tensions with the United States and broader concerns about the Canadian economy were causing uncertainty in the business sector.
Since that time, optimism has improved as Canada’s federal and provincial leaders have been working to unlock interprovincial trade, boost domestic productivity and build new trade partnerships abroad.
Managing the evolving Canada–U.S. trade impacts
While trade negotiations with the United States remain in flux, it is important for Canadian businesses to look at their existing supply chains and trade partners. Supply chains need to be more agile amid evolving tariffs and commodity prices. In an August 2025 survey of its membership, CFIB found that a third of SMEs have already moved away from American suppliers or customers, and another third are thinking about it.
Commercial insurance is a critical enabler of Canada’s economy. Insurers help businesses manage challenges and financial disruptions by assuming many of the risks inherent in the production and distribution of goods and services. As Canadian businesses pivot away from American suppliers and explore opportunities in different markets, business owners must ensure they’re set up for success.
Diversifying your supply chain
As a business owner, before diversifying your supply chain, below are best practices that can help mitigate risks:
Speak with your insurance broker and/or risk manager about conducting an in-depth risk assessment of the current supply chain. Map out the end-to-end supply chain process, considering:
Current supply chain dependencies and vulnerabilities
All suppliers and networks
Inventory lists and critical inputs
Sourcing and lead time for materials
Where it makes sense to diversify your supply chain.
Once a risk assessment is complete, measure the risks to determine the level of exposure. Tools such as risk matrices, impact modelling, gap analyses, scenario testing and forensic auditing can help identify potential areas of concern.
With a complete risk assessment, an insurance broker can advise on the appropriate coverage needed to effectively transfer risks to your insurance policy and away from your bottom line.
Business owners should consider the following types of insurance coverage:
Trade credit insurance: This type of insurance protects the business from the risk of a customer not paying and asking for credit (deferred payment). For example, if the customer’s country experiences political unrest, their funds are blocked and certain conditions under the trade credit insurance policy are met, the business owner can likely file a claim with the insurance company for payment. This, in turn, helps mitigate potential cash flow risks for the business owner.
Political risk insurance: This insurance type is most relevant for businesses that have expanded trade outside of Canada or are already trading in other countries, such as in emerging markets. Political risk coverage helps protect businesses against financial losses in the event of adverse government actions, for example. It covers risks such as expropriation, currency inconvertibility, and contract frustration, making it essential for international operations.
Supply chain insurance: This coverage supports a business in the event of a financial loss due to supply chain disruptions. It often fills gaps left by traditional property insurance (such as non-physical damage) covering lost revenue, relocation costs, and increased operational expenses.
Cargo or transit insurance: This type of insurance helps protect the business from financial losses related to shipped goods being transported by land, sea or air. For example, if a commercial truck is in a collision, preventing the cargo from arriving at a warehouse on time, this type of coverage would help cover losses from issues such as spoiled products.
Canadian SMEs are the backbone of the economy. Between 2018 and 2022, the average contribution of SMEs to Canada’s gross domestic product was 50.2% in the goods-producing sector and 46.4% in the services-producing sector. Having the right commercial insurance products in these turbulent times can be a powerful economic enabler, allowing business owners to focus on what they do best: adapting, innovating and creating economic value.
This article was written with support from the Canadian Federation of Independent Business.
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