Last week, President Trump unveiled a slew 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 such as electronic components, machinery and commercial goods are also facing tariffs.
While these measures are intended to reduce dependence on foreign goods and stimulate domestic production, rising costs will be borne by consumers, manufacturers and insurance companies.
Generally, geopolitical instability from budding trade wars is likely to result in hesitation from insurers. The National Insurance Alliance (NIA), a specialty insurance service provider based in the British Cayman Islands, anticipated that insurers may freeze capital commitments, particularly in inland marine shipping and manufacturing, and postpone major policy decisions until trade policies become clearer and the geopolitical landscape stabilizes.
“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. “Consequently, tariff induced market volatility could potentially shift the focus of insurance executives to prioritize the bottom-line and implement steeper cost management strategies.”
The new tariffs on cars and car parts are particularly anticipated to boost the cost of vehicle repairs and replacement, prompting a surge in claim costs and premiums by association. A report from HCC Insurance explains that insurers are adjusting actuarial models to reflect this new reality, forecasting six to 10% rate hikes for auto insurance by the end of 2025. Another report from rate comparison site Insurify forecast 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. “Faced with this cost increase, we expect insurers will have no other option than to pass these losses on to drivers in the form of higher premiums.”
However, before they shift the increased costs on to consumers, insurance companies will need to analyze price impacts and seek approval for rate hikes from state insurance regulators.
While the car insurance sector is not necessarily representative of the wider insurance industry, the scale of the tariffs could have a spillover effect. For example, companies operating fleets of vehicles will also face higher costs for the acquisition and maintenance of their vehicles, which could prompt insurers to re-price fleet policies based on higher replacement values, tighten
eligibility for high-mileage operators and offer fewer multi-vehicle discounts as claim volatility increases.
Ultimately, NIA forecast a $3.4 billion surge in personal auto insurance premiums, in addition to “significant increases” in commercial auto insurance rates.
This same dynamic will also play out in other insurance line 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.
As with auto finance, 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. These increases are also likely to be passed on to customers in the form of higher home insurance premiums.
Such increases in material costs are also of high concern for insurance companies offering coverage in areas prone to natural disasters where rebuilding expenses are already substantial. For example, insurers are estimated to pay out as much as $30 billion following the Los Angeles wildfires, according to a Morningstar DBRS report.
Businesses may also experience higher insurance costs due to increased expenses in repairing or replacing commercial properties, leading to higher claims costs and prompting insurers to increase premiums for commercial property coverage.
