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David Farnell, owner of Toronto-based Real Food for Real Kids Inc., says small businesses need insurance and believes in 'the concept of sharing risk.'Peter Power/The Globe and Mail

As an entrepreneur, David Farnell often doesn’t sleep well. And since the pandemic disrupted his Toronto-based catering company, Real Food for Real Kids, he sometimes finds himself lying awake at 4 a.m., wondering how he can keep running his business that delivers healthy food to thousands of kids at schools and daycares across the Greater Toronto Area.

“You can’t get back to sleep and you have payroll worries, customer and employee concerns, construction out front, and a pandemic raging on,” Mr. Farnell says. “[There’s] no end of problems to worry about.”

His busy operation was halted in mid-March, 2020, after the daycares and schools he serves were forced to close because of the government-enforced lockdown.

To help cover these initial pandemic-related losses, Mr. Farnell filed a claim with his insurance provider, Aviva Insurance Company of Canada, based on the business interruption coverage described in his policy. According to his law firm, Thomson Rogers, Aviva’s policies provide specific coverage for business losses resulting from the “outbreak of a contagious or infectious disease with 25 km” of policy holders’ premises and he says the company denied coverage on the basis that the policies “do not provide cover for global pandemics.”

Today, Mr. Farnell’s business is part of a $300-million class-action lawsuit, filed alongside two other businesses, which his law firm says was recently certified by the Ontario Superior Court of Justice.

In a statement to the Globe, Aviva said it’s “sympathetic” to difficulties brought on by the pandemic and said the company “has supported our commercial customers with a variety of short-to-medium term relief measures.” The statement also said: “As is the case with all major insurers, we have always maintained that there is no coverage for business interruption losses caused by the COVID-19 pandemic under our standard policies but respect the legal process that is currently underway.”

Despite the additional stress of bringing his insurance provider to court, Mr. Farnell continues to rely on commercial insurance to operate and he says his new policy premiums are approximately 15 per cent more than he paid previous to the onset of COVID-19. He believes the extra expense is worth it.

“I had to maintain continuity of insurance. That’s one of the things business owners should never gamble with,” Mr. Farnell says.

“In general, we need insurance companies and the concept of sharing risk. Without that, you don’t get the entrepreneurial dynamism that makes this economy so exciting and resilient.”

Mr. Farnell is among a growing number of businesses facing higher insurance costs during this interpandemic phase.

About seven in 10 businesses in Canada have seen their insurance premiums rise since January, 2021, according to a Canadian Federation of Independent Business (CFIB) survey released in August. The extra costs come as many businesses are struggling amid the economic uncertainty caused by the pandemic.

“Commercial insurance is the top operating cost for small businesses right now,” says Jasmin Guénette, CFIB’s vice-president of national affairs.

He recommends businesses owners read their insurance policies carefully to ensure they understand what’s covered – and what’s not.

“Read your contract,” he says. “If you are not aware of different clauses … talk to your broker and ask them questions.”

To manage risk, Mr. Guénette says business owners should also stay in contact with their insurance provider and let them know if there are any changes to the operations that could affect their coverage.

“Any changes to the level of sales, number of employees or projected yearly revenue has an impact on your insurance premium,” he explains.

For example, Ontario recently loosened some of its COVID-19 restrictions, which means many businesses will serve more customers. This translates into more risk and the need for enough insurance to cover it.

Similarly, if your revenue shrinks, the size of your policy should reflect that, too, Mr. Guénette says.

For owners struggling with higher premiums, he recommends contacting the insurance provider to see what programs may be available for small businesses.

“They should inquire if they can delay payments when they are struggling to pay [their premiums],” he says.

Mr. Guénette says owners can also reach out to the Insurance Bureau of Canada, which helps small businesses navigate renewals.

“If you don’t have proper insurance, they can help find alternatives,” he adds.

The bad news is that full coverage from a business interruption, such as a pandemic, is now hard to come by.

“Pandemic coverage was available prior to COVID-19; however, it wasn’t affordable for many small businesses, unfortunately,” explains Mark Morissette, co-founder and chief executive officer of Foxquilt Inc., an insurance platform catered to small business needs.

“Presently, coverage for COVID-19 is not available as insurers treat this event similar to insuring a house that is already on fire.”

Mr. Farnell doesn’t only depend on insurance to protect his business.

“We manage risk every day and we need to build resiliency into our business models,” he says.

At his catering company, that has meant evolving into offering home delivery services and packaged goods in addition to catering meals to schools and daycares. He says the new lines of business account for about 10 per cent of the company’s revenue. Still, overall sales are down by about 25 per cent to 30 per cent since the pandemic started about 19 months ago.

While a pandemic-proof policy is no longer available, Mr. Morissette recommends getting cyber insurance with business interruption coverage.

“We’re seeing an increase in cyber claims throughout the pandemic. There are so many people working from home now; networks are exposed,” he says. “The pandemic has shown the severity of how businesses’ profits can be affected while they’re shut down from a cyberattack.”

For more affordable premiums, Mr. Morissette suggests looking for flexible policies that are friendlier to your bottom line. Instead of a one-size-fits-all package, some insurance providers allow you to pick the products and features that cover your specific needs best.

“Having choice means greater savings because you’re no longer overpaying for coverage you don’t need.”

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