How can brokers help clients see the true cost of underinsurance?

There’s a lot keeping business leaders up at night. Among the reasons are economic uncertainty, inflation, supply chain pressures, and rising operating costs, which are all pushing Canadian businesses to reassess their expenses. As clients look for savings, some are turning to their insurance policies — and that, says Chris Charlton, Assistant Vice-president of Commercial Solutions (Western Region), with Sovereign Insurance, is where things can start to unravel.

“In this environment, we’re seeing more businesses trying to manage their absolute cost spend, not just their rates and exposures,” he says. “Insurance gets lumped in with utilities or supplier costs, but that’s a mistake. Insurance is not a commodified item. It behaves very differently — especially when you need it.”

The shift has been real — and it’s especially concerning when insurance is treated like a simple line item on a budget sheet, Charlton adds.

The most common cutbacks

The temptation to cut coverage can show up in subtle ways, says Charlton. “We’re seeing changes around building valuations, stock and work-in-progress, and indemnity periods for business interruption,” he explains. “Some clients are reducing limits or skipping contingent business interruption entirely.”

There’s also a growing trend of questioning the value of specialty coverages. “Is Cyber really essential? Do I need Directors and Officers or Employment Practices Liability? That’s the conversation we’re seeing more of — a shift in mindset around what’s considered ‘core’ and what’s considered optional.”

The challenge, he says, is that these levers — reducing limits, scaling back coverage, or relying on outdated valuations — are easy to pull, but the long-term consequences can be significant.

The real cost of cutting corners

“When a business needs to recover from a loss, the decision to underinsure can create a massive resource drain,” Charlton says. “That includes deductible gaps, waiting periods, and shortfalls from undervalued assets or inadequate indemnity periods.”

The ripple effects go even deeper. “In a tight labour market, your employees are your most valuable asset. If your recovery plan is delayed or underfunded, it puts strain on your team — and that can be devastating to morale, operations, and retention,” he adds.

There’s also reputational fallout. “Underinsurance creates friction in claims. It damages trust. When expectations aren’t met — even if those expectations were never clearly discussed — it reflects poorly on everyone involved.”

From price to value: reframing the conversation

Charlton believes the conversation should be shifted away from cost and back toward value.

“The best tool brokers have is their time,” he says. “If your client interaction is limited to an email at renewal, you’ve missed the chance to add value. But if you take the time to understand [your client’s] evolving risks, you can guide a more nuanced discussion, one that focuses on what’s actually being protected and why.”

He encourages brokers to look for red flags, like static valuations, outdated indemnity periods, and business interruption limits that haven’t changed despite fluctuations in revenue. “Ask yourself, ‘Is this business accurately insured?’ Not under or over — but accurately.”

Supporting smarter risk decisions

As a niche commercial insurer laser-focused on midsize to large industries — including manufacturing, construction and contracting, wholesale, warehousing and transportation, and energy and resources — Sovereign recognizes there isn’t a one-size-fits-all solution.

“We continue to invest in our industry-specific expertise, risk engineering, and localized underwriting — not just to quote policies, but to help brokers and clients protect what matters most,” Charlton says. “Having underwriters who live and work in the same regions as our clients enables us to understand those market nuances — and they’re empowered to make decisions that reflect it.”

Sovereign’s team takes time to explain policy design and coverage trade-offs, he adds. “We’re not here to commodify. We’re here to enable smart underwriting decisions, supported by technology, not dictated by it.”

In today’s climate of complexity and uncertainty, underinsurance isn’t just risky — it’s avoidable, he adds.

“This process doesn’t lend itself to shortcuts,” Charlton says. “It demands attention, time, and nuance. By collaborating with our broker partners, we can turn risk conversations into real-world resilience, and make it easier for Canadian businesses to navigate complexity and avoid costly missteps.”