Last week, President Trump announced new tariffs that could significantly impact the cost of cars and construction materials in the United States. The tariffs include a hefty 25% duty on all imported cars and car parts, along with increased tariffs on materials like steel, aluminum, and lumber. This move is part of a broader strategy to reduce reliance on foreign goods and boost domestic production.
However, these tariffs come with a price. Consumers, manufacturers, and insurance companies are likely to feel the financial strain. The National Insurance Alliance (NIA) warns that the uncertainty from these trade policies may cause insurers to hold back on investments, especially in sectors like inland marine shipping and manufacturing. They predict that insurers might delay major decisions until the trade situation becomes clearer.
The NIA also highlighted that if a trade war leads to an economic downturn, it could shrink the risk pool for insurers, making it harder for them to underwrite policies. Consequently, insurance companies might focus more on their profits and implement stricter cost management strategies.
One of the most immediate effects of these tariffs will be seen in auto insurance. The new tariffs are expected to raise the costs of vehicle repairs and replacements, leading to higher claim costs and premiums. A report from HCC Insurance indicates that auto insurance rates could rise by 6% to 10% by the end of 2025. Insurify, a rate comparison site, estimates that the annual cost of insuring a vehicle could jump from around $2,300 to over $2,750.
Insurify’s Director of Sales and Service, Mallory Mooney, noted that the increase in auto parts prices will force insurers to spend more on repair claims. As a result, they will likely pass these costs onto drivers through higher premiums. However, before raising rates, insurers must analyze the impact and seek approval from state regulators.
The ripple effects of these tariffs will extend beyond just personal auto insurance. Businesses that operate fleets will also face increased costs for acquiring and maintaining vehicles, which may lead to higher premiums for fleet insurance as well. Insurers might adjust their pricing strategies based on higher replacement values and increased claim volatility.
The construction industry is not immune either. Tariffs on key building materials are expected to raise the costs of home repairs and rebuilding. Reports indicate that significant portions of essential materials, like lime, gypsum, and wood, come from countries now facing steep tariffs. This will likely lead to higher home insurance premiums as insurers adjust to increased claim costs.
Areas prone to natural disasters will see even more pressure, as rebuilding expenses can already be substantial. For instance, following the devastating wildfires in Los Angeles, insurers may face payouts as high as $30 billion.
In summary, the new tariffs are set to raise costs across various sectors, affecting consumers and businesses alike. As the insurance industry grapples with these changes, higher premiums for auto and homeowners’ insurance seem inevitable.