Insurance organizations weathered the impacts of economic uncertainly during and since the pandemic, making many of them cautious regarding the proposed tariffs in the U.S. (Credit: Jeerawut/Adobe Stock)
Tariffs — or import taxes — play a distinct role in economic policy because of their potential to influence consumer choices and prices, buoy domestic production, and sway international relations.
Popular opinion among economists is that tariffs are 'self-defeating and have a negative effect on economic growth and welcome.' However, in an unconventional policy move that falls in line with much of the way U.S. President Donald Trump operates, tariffs have been a central theme of this White House. Proposals include a 25% upcharge on goods from the EU, Canada and Mexico; a 25% charge on all incoming steel and aluminum imports; and a 10% tariff on products from China. “The tariffs are going forward on time, on schedule,” Trump said during a recent White House press conference.
What does it mean for insurance?
Like most financial operations, insurance organizations relish economic calm. The industry already stressed in recent years thanks to the financial uncertainty unleashed by persistent and increasingly expensive natural disasters, economic inflation and social inflation. The President’s proposed tariff agenda deepens that uncertainty.
Counterpart CEO Tanner Hackett told PropertyCasualty360.com via email that the small business clients served by his company’s management liability insurance are already feeling beat-up by higher costs.
“Small businesses have wrestled with how to navigate high inflation for years, leading many to focus on operational efficiency and supply chain diversification to absorb rather than pass on costs to customers,” Hackett said. “Our own reporting found that last year, three-quarters of small business owners and CEOs said inflation was their largest concern, up from two-thirds of businesses in 2023.”
Hackett added that proposed tariffs are forcing businesses to stockpile goods like steel and electronics: “The economic uncertainty, compounded by inflation and potential tariffs, is forcing businesses to re-evaluate their unit economics. They’re under pressure to improve their operational efficiency and are pivoting towards technology as the means — 13% of SMBs are currently using AI to reduce headcount according to Counterpart’s 2024 Small Business Insights Report. This shift could have implications on current and future headcount, while challenging organizations to reskill employees.”
Eric Poe, CEO of CURE auto insurance, commented on how tariffs may impact the auto-repair industry.
“About 60% of U.S. car replacement parts come from Mexico, China, and Canada, accounting for 40% of insured repair costs,” Poe said in a statement to PropertyCasualty360.com. “Tariffs on steel and aluminum will further strain the post-COVID supply chain, driving up repair costs and claim payouts.”
Poe added: “This won’t cause premiums to rise overnight, but brokers and agents should prepare for long-term ripple effects. More vehicles could be totaled due to higher repair costs, pushing consumers into the market for new cars sooner than expected, and drivers will be looking for insurers committed to keeping costs low and providing fair, stable coverage.”
In an early February briefing, the American Property Casualty Insurance Association noted the potential for tariffs to drive up prices on both replacement automobile costs as well as new vehicles. Repairs also may take longer, all of which has the potential to buoy auto-insurance premiums: “Wolfe Research found that President Trump’s tariffs would likely raise the cost of new cars by around $3,000, resulting from higher manufacturing costs. Over 50% of all auto parts exported are imported to the U.S. from Mexico and Canada. The tariffs could increase the costs of all vehicles assembled in the U.S.,” the APCIA said in its press release.
The organization continued: “Thanks to a highly competitive insurance market, auto insurance is beginning to stabilize. This positive trend, however, could be undermined by tariffs, if they result, as expected, in increased costs to repair or replace cars and other property, which again would lead to higher costs that would need to be reflected in auto insurance premiums, a result no one wants.”
Construction costs also may rise, which would drive up home-insurance claim costs. “We estimate the potential impact of the tariffs on increase claim costs for personal auto insurance alone is approximately $7-$24 billion,” the APCIA said.
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