Tariffs Threaten to Raise Insurance Costs, Experts Warn
New US tariffs on imported automobiles and parts are poised to send shockwaves through the insurance industry, potentially increasing costs and introducing volatility across various lines of coverage. Industry analysts are warning of the potential for supply chain disruptions and rate pressures as a result of these protectionist measures.
Ann Modica, director at AM Best, observed that the imposition of tariffs could generate uncertainty that affects both underwriting and investment strategies. Broader geopolitical tensions and potential supply chain disruptions are also likely outcomes, influencing asset markets, capital flows, and investor behavior. “Greater market volatility throughout 2025” is a likely result, Modica noted.
The US is considering a 25% tariff on imports from Canada and Mexico, in addition to higher tariffs on Chinese goods. These measures are expected to negatively impact the insurance sector, with particular implications for homeowners’ and personal auto insurance.
Robert Passmore, vice president of the personal lines department at the American Property Casualty Insurance Association (APCIA), stated that the industry is still struggling to recover from elevated inflation and pandemic-related cost increases. He noted that without alternative sources for vehicle parts and building materials, insurers may face significant cost pressures once the tariffs are enacted.
Automotive Sector and Tariff Effects
A 25% tariff on all imported automobiles and parts will take effect on April 2. The stated goal is to bolster domestic manufacturing and generate an estimated $100 billion annually. However, the insurance industry is bracing for the financial fall out.
Robert Hartwig, clinical associate professor at the University of South Carolina, projects that personal auto claims could see an $11 billion increase in costs because of the tariffs. He also suggested the financial impact could extend across both commercial and residential claims, depending on the supply chain’s response.
Modica emphasized that tariffs on steel and aluminum would directly increase the cost of vehicles and parts. Hartwig highlighted the reliance of US auto manufacturing on imported components, particularly from Canada and Mexico, and pointed out the highly integrated nature of North American supply chains.
Arguments For and Against Tariffs
Supporters of the tariffs assert that these measures protect domestic industries by increasing the cost of imported goods, encouraging consumers to buy American-made products. This protectionist approach aims to stimulate domestic production, generate jobs, and reduce trade deficits.
In response to anticipated tariff impacts, some foreign companies are increasing their investments in the United States. For example, Hyundai announced a $20 billion investment, including the construction of a $5.8 billion steel plant in Louisiana. This strategy seeks to mitigate the impact of tariffs and signifies a commitment to expanding US operations.
Broader Implications
The agricultural sector is also facing challenges due to rising trade tensions. Farmers, especially those exporting soybeans and corn, are preparing for potential retaliatory tariffs from major trading partners such as China, Canada, and Mexico. These tariffs could diminish export opportunities and worsen financial strains in the farming community.
