Explore how tariffs reshape the insurance industry, affecting costs, policies, and global market dynamics. Discover key insights and trends.
Last week, a significant announcement was made by President Trump regarding the imposition of new tariffs. These include a 25% duty on all cars and car parts imported into the United States, alongside expanded tariffs on essential materials for construction and manufacturing. These materials encompass steel, aluminum, and lumber. Furthermore, electronic components, machinery, and various commercial goods are also subjected to these tariffs.
The primary objective of these tariffs is to decrease reliance on foreign imports and invigorate domestic production. However, these measures are likely to lead to increased costs for consumers, manufacturers, and insurance companies. The geopolitical instability resulting from these emerging trade wars may cause insurers to exhibit caution. The National Insurance Alliance (NIA), located in the British Cayman Islands, predicts insurers might halt capital commitments, especially in sectors like inland marine shipping and manufacturing, until trade policies are clearer and the geopolitical climate stabilizes.
According to an NIA report, “Since insurance growth is closely linked to GDP, an economic downturn triggered by a trade war could shrink the overall risk pool, adversely impacting underwriting.” This market volatility may force insurance executives to focus on maintaining their bottom line by implementing stricter cost management strategies.
The introduction of tariffs on automobiles and their components is expected to inflate the cost of vehicle repairs and replacements, leading to a spike in claim costs and premiums. A report from HCC Insurance indicates that insurers are revising actuarial models to accommodate this new reality, predicting auto insurance rate increases of six to ten percent by the end of 2025. Insurify, a rate comparison platform, projects that the full impact of these tariffs could elevate annual auto-insurance expenses for a single vehicle from around $2,300 to over $2,750.
As Insurify’s Director of Sales and Service, Mallory Mooney, elucidates, “The general consensus is that the new tariffs will drive up the cost of auto parts, leading insurers to incur higher repair claim expenses. Faced with these increased costs, insurers are likely to pass these expenses onto drivers in the form of elevated premiums.” However, insurance companies must first analyze these costs and seek approval from state insurance regulators before implementing rate hikes.
While the automobile insurance sector may not fully represent the broader insurance industry, the extensive nature of the tariffs could have ripple effects. Companies operating vehicle fleets will experience increased costs for vehicle acquisition and maintenance, prompting insurers to adjust fleet policy pricing based on higher replacement values, tighten high-mileage operator criteria, and reduce multi-vehicle discounts due to increased claim volatility.
The NIA forecasts a $3.4 billion surge in personal auto insurance premiums, along with “substantial increases” in commercial auto insurance rates.
This dynamic is also anticipated to extend to other insurance sectors. Tariffs on construction materials are expected to escalate home repair and rebuilding costs. As per the National Association of Home Builders (NAHB), in 2023, approximately 71% of lime and gypsum imports, crucial in mortar and other construction materials, originated from Mexico, while 70% of wood imports were from Canada, and over half of all household appliances came from China. These countries are now facing tariffs of 25% (Mexico and Canada) and 54% (China).
Similar to the auto sector, these increased material expenses will raise the compensation insurers must provide to repair or replace homes for each claim. These added costs are also expected to be transferred to customers through higher home insurance premiums. This concern is particularly significant for insurers offering coverage in areas prone to natural disasters, where rebuilding costs are already high. For instance, insurers may need to pay up to $30 billion following the Los Angeles wildfires, as reported by Morningstar DBRS.
Businesses could also encounter higher insurance costs due to increased expenses in repairing or replacing commercial properties, leading to elevated claims costs and prompting insurers to raise premiums for commercial property coverage.
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