Explore how new tariff policies impact US auto insurers, creating challenges and shaping the industry’s future dynamics.
The US auto insurance sector is preparing for significant rate increases as new worldwide tariffs on imported vehicles and parts are set to take effect. A substantial 25% tariff on imported passenger vehicles and light trucks is scheduled to commence on April 3, followed by tariffs on essential auto parts starting May 3.
Industry experts caution that these additional expenses will permeate the supply chain, consequently affecting both repair costs and insurance premiums. According to Michel Leonard, the chief economist at the Insurance Information Institute, the initial impact of these tariffs will be observed in auto claims due to dwindling inventories, which will elevate costs for parts and repairs. He emphasized that unlike single-digit tariffs, which aim to modify supply chains, these double-digit tariffs are designed to entirely replace them.
“The concept of a product being entirely from one country is outdated,” Leonard remarked, highlighting that the targeted nature of these tariffs will minimize their disruption compared to the supply chain shocks experienced during the pandemic.
Repair costs are already high due to the increasing complexity of vehicles, inflation, and rising litigation expenses. Data reveals that incurred losses for private passenger auto physical damage have surged by 52.3% over five years, while liability losses have increased by 30.7%. Claims severity for liability property damage has risen by 51.6%, significantly outpacing the 19.1% growth witnessed in the preceding five-year period.
Insurify predicts that average auto premiums might climb by 19% in 2025, compared to a 5% increase anticipated before factoring in the tariffs. Of this predicted rise, 7% is attributed to the new global tariffs, 4% to duties on steel and aluminum, and 3% to trade impacts within North America. This benchmark is supported by the COVID-19 pandemic period when vehicle replacement costs surged at rates two to three times higher than overall inflation.
In response, insurers have implemented aggressive rate hikes and cost-cutting measures, although Leonard noted that there’s limited scope for further expense reduction. “There’s a limit to what can be done,” he stated.
Both Progressive CEO Tricia Griffith and Liberty Mutual CEO Tim Sweeney have acknowledged the inflationary risks posed by these tariffs, with potential rate filings expected later this year. Griffith remarked, “Typically, tariffs are a one-sided risk to our loss costs.”
Additionally, the administration of President Donald Trump has imposed further tariffs on imports from China, North America, and on global steel and aluminum, exacerbating the pressure on the industry.
As macroeconomic and geopolitical forces continue to intensify, Leonard warned, “We’re looking at another very significant disruption again”—indicating that insurers may need to pursue additional rate hikes to keep pace with these changes.
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