Geopolitical Instability’s Impact on the Insurance Industry
President Donald Trump’s announcement of a 25% import tax on all steel and aluminum, along with the potential for escalating trade tensions, is creating significant uncertainty for the insurance industry. Kenneth Saldanha, insurance lead for the Americas at Accenture, highlights the potential repercussions of these developments.
According to Saldanha, “The short answer is that geopolitical instability is whipsawing (insurance) companies.” He noted that carriers have already revised earnings releases multiple times due to shifting conditions, causing a ‘waiting stance’ amongst insurers before making big moves. This hesitation has a ripple effect, slowing down business lines that depend on global exposure.
Trade War Impacts
Uncertainty extends beyond just underwriting decisions, raising questions about the long-term effects of global economic shifts on the insurance sector. Saldanha points out that insurance growth historically correlates closely with GDP; thus, global market disruptions could negatively impact insurers. “If geopolitical risks trigger a global trade war, GDP could take a hit, shrinking the risk pool and reshaping the industry,” he stated. The looming threat of a trade war, with the potential for escalating tariffs and disrupted supply chains, is a significant concern.
Industry Responses
In response to this instability, insurance executives are focusing on what they can control: costs. Saldanha anticipates “a slowdown in multinational underwriting and an intensified focus on cost management as insurers navigate volatility.”
Auto Insurance Under Pressure
Auto insurance is already feeling the strain. Tariffs or any type of disruption on Canadian imports are likely to affect the manufacturing sector, with direct consequences for the insurance industry. The US relies heavily on Canada for auto parts, and increased costs will translate to higher claims expenses. “Ongoing supply chain disruptions – whether from tariffs, COVID-19, or a port strike – are already impacting the industry,” Saldanha comments. These disruptions can drive up costs for auto parts, building materials, and other essential inputs, leading to higher indemnity expenses.
Beyond direct cost increases, supply chain delays can extend claims-related expenses, because longer repair times lead to increased costs for areas like alternative living, business interruption, and rental vehicles. Increased storage costs are also part of the picture. Saldanha clarifies, “Ultimately, whenever the supply chain is disrupted, we see the same pattern: higher indemnity costs and increased secondary expenses.”
For insurance executives, there’s a tightrope to walk. While the need to cut costs is being increasingly prioritized, the need to remain competitive by offering fair coverage and claims payouts remains.
As the current situation evolves, businesses and especially insurance companies will need to assess the wide-ranging potential effects on the insurance industry.
