Tariffs May Drive Up Insurance Costs, Experts Warn
New US automobile tariffs, coupled with potential additional tariffs, are poised to drive up costs across various lines of insurance, including property, auto, life, and health. Industry analysts are expressing concern about the potential impacts of these measures, which include supply chain disruptions and mounting underwriting uncertainties.
Ann Modica, a director at AM Best, stated that the imposition of these tariffs could create uncertainty, affecting underwriting and investment strategies. Broader geopolitical tensions and potential supply chain disruptions are also likely outcomes. Modica noted, “These developments could influence asset markets, capital flows, and investor behavior, contributing to greater market volatility throughout 2025.”
The US is considering a 25% tariff on imports from Canada and Mexico, in addition to boosted tariffs on Chinese goods. These measures’ impact is expected to hit the insurance sector significantly, particularly affecting homeowners’ and personal auto insurance. The industry is still recovering from heightened inflation and pandemic-related cost increases, as explained by Robert Passmore, vice president of the personal lines department at the American Property Casualty Insurance Association (APCIA). He added that, with no alternative sources for vehicle parts and building materials, insurers may face notable cost pressures when tariffs are enacted.
Tariffs Targeting Automobiles
On April 2, a 25% tariff on all imported automobiles and parts will take effect. The initiative aims to bolster domestic manufacturing and generate roughly $100 billion annually.
The agricultural sector is also facing substantial challenges from escalating trade tensions. Farmers, especially those exporting products like soybeans and corn, are bracing for possible retaliatory tariffs from major trading partners, including China, Canada, and Mexico. These tariffs could diminish export opportunities and worsen financial strain on the farming community.
Robert Hartwig, a clinical associate professor at the University of South Carolina, estimates that personal auto claims could see an $11 billion increase in costs in the long run because of the tariffs. He also suggested that the financial impact could spread across both commercial and residential claims, depending on how the supply chain responds.
Modica further stated that tariffs on steel and aluminum could also directly increase vehicle and part costs. Hartwig highlighted how US auto manufacturing depends on imported components, particularly from Canada and Mexico, highlighting the integrated North American supply chains.
Arguments for Tariffs
Supporters of the tariffs argue that they protect domestic industries by making imported goods more expensive, thus encouraging consumers to purchase American-made products. This protectionist approach is intended to stimulate domestic production, create jobs, and reduce trade deficits.
Some foreign companies respond to Trump’s tariff policies by boosting their US investments. For example, Hyundai announced a $20 billion investment, including plans to construct a $5.8 billion steel plant in Louisiana. This initiative aims to mitigate tariff impacts and demonstrates a commitment to expanding US operations.
