Insurance Costs Expected to Rise Due to Tariffs and Policy Shifts
The insurance industry is preparing for significant challenges stemming from governmental policies, particularly those related to tariffs and broader economic actions. The ramifications extend well beyond the direct impact of tariffs, potentially affecting auto, home, health, and life insurance, and raising costs for consumers while impacting company profits.
“The president’s every action, from tariff threats to targeting immigrant workers, is setting off actuarial alarm bells,” says Rep. Jake Auchincloss (D-Mass.). In an opinion column for MSNBC.com, Auchincloss highlighted the potential for costly increases in auto insurance rates due to tariffs. He also warned that other policies, including actions within the legal system and the expansion of responsibilities for the uninsured, would likely raise costs across the board.
Auto and Home Insurance in the Crosshairs
Because cars are “bundles of lumber, steel, aluminum, and semiconductors,” the administration’s plans to tax these materials could generate inflation that would increase repair and replacement expenses, according to Auchincloss. He noted this would be “quite the opposite of Trump’s campaign promise to cut auto insurance premiums in half.”
Home insurance may be even more vulnerable. Nearly 15% of total U.S. imports are construction-related goods, of which Canada accounts for half of the wood imports. The material costs of home construction and repairs are expected to surge, along with labor costs. “The construction industry has the highest percentage of undocumented workers of any sector,” Auchincloss stated. The Congressman warned that immigration policies could shrink the workforce, subsequently driving up homebuilding expenses.
Health Insurance and Market Downturns
Health insurance costs may also spike. Auchincloss noted that policies that may limit access to Medicaid, which provides insurance for children, the poor, and the elderly, could raise costs. “The uninsured still get sick, though. Lacking access to preventive care, they may get sicker faster. When they do, they go to emergency rooms, where hospitals foot the bill.” This dynamic could indirectly impact insurance costs.
The insurance companies themselves are unlikely to escape unscathed. Most insurers depend on investment returns for a significant portion of their profits and the downturn in the markets is likely to impact earnings. “Those returns are a function of interest rates and asset management, not underwriting,” Auchincloss explains.
Industry Perspectives and Future Outlook
Recent data from the Consumer Price Index showed some positive signs. However, analysts warn of underlying inflationary pressure. “While we may have seen a slower rate of inflation in February, price pressures have the potential to remain sticky from here,” says David Seider, chief commercial officer at The Zebra, an online insurance comparison service. Seider noted auto insurance rates are up 11.1% annually and are expected to rise further as the issues continue.
Seider observed that some dealerships had already begun to adjust prices in anticipation of tariffs. “If the price of materials, and new and used vehicles continues to rise, so will the price of auto insurance,” he said. He added that many leading insurance brands are in a stronger financial position than in previous years.
“Years of increasing rates has brought stability and profitability back to their books,” he said. “So, some of them may be able to ‘wait and see’ when tariffs go into place and won’t be forced to preemptively increase rates. All that being said, if tariffs are here to stay, they will adjust their pricing to match.”
