Canadian small and medium-sized enterprises (SMEs) are operating in an increasingly uncertain environment marked by structural volatility, softening consumer demand, inflationary pressures and mounting sector-specific trade challenges.
In early 2025, the Canadian Federation of Independent Business (CFIB), which represents more than 100,000 SMEs nationwide, reported that its Business Barometer long-term optimism index had fallen to its lowest level since April 2020, when trade tensions with the US and broader concerns about the Canadian economy were weighing on sentimen.
Since then, confidence has improved as federal and provincial governments have moved to reduce interprovincial trade barriers, boost domestic productivity and pursue new trade relationships abroad. According to the Insurance Bureau of Canada, that gradual recovery is playing out against more persistent trade and geopolitical volatility, reshaping risk profiles for SME clients and driving demand for more specialized commercial coverage.
While trade negotiations and tariff policies with the US remain in flux, Canadian businesses are being pushed to reassess their supply chains and trading relationships. Supply chains need greater agility to cope with changing tariffs, volatile commodity prices and shifting regulatory requirements.
CFIB’s August 2025 survey on Canada–US trade found that roughly one-third of SMEs had already moved away from US suppliers or customers, and another third were considering doing so. Other CFIB research indicates that about half of small businesses are diversifying away from US suppliers and markets to some degree, and a large majority want Canada to deepen trade ties with countries beyond the US and China.
Despite those shifts, the US remains the dominant destination for Canadian SME exporters, the IBC said. Federal data showed that, in 2023, just over 15% of Canadian SMEs exported, and more than 85% of those exporters sold into the US market. Government reports also indicated that SME export participation is at a historic high, with the share of SMEs that export rising steadily over the past decade.
That combination of heavy concentration in the US market and rising overall export activity means trade policy changes, currency moves and geopolitical shocks can have an immediate impact on smaller firms’ revenues and balance sheets.
Commercial insurance is a key tool in managing those pressures. According to the IBC, insurers help businesses absorb operational shocks and financial disruptions by assuming part of the risk inherent in producing and distributing goods and services.
As Canadian firms adjust their exposure to US trade and pursue opportunities in new markets at home and abroad, business owners need to ensure their insurance programs keep pace.
Before diversifying a supply chain, IBC urged business owners to work with an insurance broker and/or risk manager to conduct an in-depth assessment of their current arrangements. That process should map the end-to-end supply chain, including key dependencies and vulnerabilities, all suppliers and networks, inventories and critical inputs, sourcing locations and lead times for materials, and the points in the chain where diversification would be most effective.
Once that mapping is complete, the next step is to measure and prioritize risks to understand the level of exposure. Tools such as risk matrices, impact modeling, gap analyses, scenario testing and forensic auditing can help identify pressure points in the supply chain and quantify the potential financial consequences of disruption.
With a comprehensive risk assessment in hand, an insurance broker can then advise on the coverage structure needed to help transfer those risks from the business’s balance sheet and cash flow to an insurance policy, the IBC said.
Meanwhile, several types of coverage are emerging as particularly relevant in a shifting trade environment and are attracting heightened interest from insurance buyers and underwriters.
Trade credit insurance protects a business from the risk of a customer failing to pay when sales are made on credit terms, the bureau said.
For example, if a customer’s country experiences political unrest that leads to blocked funds and the loss meets the conditions of the trade credit policy, the business may be able to file a claim with the insurer for payment. That can mitigate cash flow risk when selling into new or higher-risk markets.
Globally, trade credit insurance is viewed as a growth segment, with multiple market studies projecting that premium volume could roughly double over the next decade as more companies seek protection against buyer default and insolvency risk.
Political risk insurance is increasingly important for businesses that have expanded trade outside Canada or are already active in other countries, including emerging markets. This coverage helps protect against financial losses arising from adverse government actions, such as expropriation, currency inconvertibility or contract frustration.
In addition, heightened geopolitical tensions and the expanded use of sanctions are pushing political risk underwriting further into the mainstream, with more mid-market accounts requiring tailored solutions and closer monitoring of country and sector accumulations, the IBC said.
Supply chain insurance can also respond to financial loss caused by disruptions in the supply chain. Often designed to address gaps left by traditional property policies, including certain non-physical damage losses, it may cover lost revenue, relocation costs and increased operational expenses resulting from supplier failures or transport interruptions. As more SMEs rely on just-in-time inventory and global suppliers, this type of cover is becoming central to discussions on business continuity and contingent business interruption.
Cargo or transit insurance protects against financial losses related to goods in transit by land, sea or air. If, for instance, a commercial truck is involved in a collision and cargo does not reach a warehouse on time, leading to spoilage or missed delivery windows, this coverage can respond to those losses, subject to policy terms and conditions. From an underwriting perspective, evolving risks such as port congestion, climate-related weather events and political unrest along key trade routes are influencing pricing, deductibles and limits in cargo lines.
Canadian SMEs are widely recognized as a cornerstone of the national economy. Federal data indicate that between 2018 and 2022, SMEs accounted on average for just over half of Canada’s gross domestic product in the goods-producing sector and nearly half in the services-producing sector.
In 2024, SMEs generated close to 38% of the total value of Canada’s goods exports, underscoring their importance not only domestically but in international trade as well.
Those figures underline why SME trade resilience is not only a client issue but a broader systemic concern, the IBC said. Having the right mix of commercial insurance products in turbulent times can support business continuity and investment decisions, allowing owners to focus on adapting and innovating, while giving insurers and brokers a growing but technically demanding segment where well-structured risk transfer can directly reinforce Canada’s wider trade and growth objectives.
