US auto insurers are bracing for rate hikes as new global tariffs on imported vehicles and parts take effect. A 25% tariff on imported passenger vehicles and light trucks begins April 3, with key auto parts following on May 3.
Industry analysts warn the added costs will ripple through the supply chain and hit both repair costs and premiums.
Michel Leonard, chief economist at the Insurance Information Institute, said the tariffs will first impact auto claims as inventories shrink, pushing up costs for parts and repairs. He noted that while single-digit tariffs aim to adjust supply chains, double-digit tariffs—like these—are meant to replace them entirely.
"The idea of a product being fully from one country is outdated," Leonard said, adding that the tariffs’ targeted nature will limit their disruption compared to the pandemic-era supply shocks.
Repair costs are already elevated due to increased vehicle complexity, inflation, and higher litigation expenses. Data shows incurred losses for private passenger auto physical damage surged 52.3% over five years, while liability losses rose 30.7%. Claims severity for liability property damage rose 51.6%, significantly outpacing the 19.1% growth seen in the previous five-year period.
Insurify projects average auto premiums could rise 19% in 2025, up from 5% before the tariffs were factored in. Of that increase, 7% is attributed to the latest global tariffs, 4% to steel and aluminum duties, and 3% to North American trade impacts. The benchmark is reinforced by the COVID-19 pandemic, when replacement costs for vehicles spiked at two to three times the rate of overall inflation.
Insurers have responded with aggressive rate hikes and cost-cutting. However, Leonard said carriers have little room left to reduce expenses. “There’s a limit to what can be done,” he said.
Progressive CEO Tricia Griffith and Liberty Mutual CEO Tim Sweeney both acknowledged the inflationary risks, with potential rate filings likely later this year. “Typically, tariffs are a one-sided risk to our loss costs,” Griffith said.
President Donald Trump’s administration has also imposed additional tariffs on imports from China, North America, and global steel and aluminium, compounding the pressure.
As macroeconomic and geopolitical forces intensify, Leonard warned, “We’re looking at another very significant disruption again”—with insurers likely needing more rate hikes to keep pace.
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