Impact of New U.S. Tariffs on Insurance Businesses
The recent imposition of tariffs by the U.S. government on imports from around the world is poised to have a significant impact on the insurance industry, particularly on auto and real estate insurance businesses. Last week, President Trump unveiled a series of tariffs, including a 25% duty on all cars and car parts imported to the U.S., as well as expanded tariffs on key construction and manufacturing materials such as steel, aluminum, and lumber. Additional materials like electronic components, machinery, and commercial goods are also facing tariffs.
Auto Insurance Sector
The new tariffs on cars and car parts are expected to boost the cost of vehicle repairs and replacement, prompting a surge in claim costs and premiums. According to a report from HCC Insurance, insurers are adjusting their actuarial models to reflect this new reality, forecasting six to 10% rate hikes for auto insurance by the end of 2025. Insurify, a rate comparison site, forecasts that the full weight of the tariffs could increase yearly auto-insurance costs on a single vehicle to more than $2,750 from around $2,300. “The consensus is that recent tariffs will raise the price of auto parts and cause insurers to spend more money on repair claims,” Insurify’s Director of Sales and Service Mallory Mooney explained.
Homeowners’ and Commercial Property Insurance
The same dynamic will play out in other insurance lines of business, with tariffs on construction materials expected to raise the cost of home repairs and rebuilding. According to a report from the National Association of Home Builders (NAHB), around 71% of lime and gypsum imports – key ingredients in mortar and other construction materials – came from Mexico in 2023, while 70% of wood imports came from Canada and more than half of all household appliances came from China. Mexico and Canada are now facing 25% tariffs, while China is facing a 54% tariff. These increased material costs will raise the amount an insurance company has to pay out to repair or replace homes for each claim it receives.
Industry Response
The National Insurance Alliance (NIA), a specialty insurance service provider, anticipated that insurers may freeze capital commitments, particularly in inland marine shipping and manufacturing, and postpone major policy decisions until trade policies become clearer. “Since insurance growth is closely tied to GDP, a trade war-induced economic downturn could reduce the overall risk pool, negatively affecting underwriting,” NIA explained in a report. NIA forecast a $3.4 billion surge in personal auto insurance premiums, in addition to “significant increases” in commercial auto insurance rates.
As the insurance industry navigates these changes, companies will need to analyze price impacts and seek approval for rate hikes from state insurance regulators. The scale of the tariffs could have a spillover effect on other insurance sectors, including fleet policies and commercial property coverage.
