President Trump has stirred up global trade tensions with a new set of tariffs aimed at boosting American manufacturing and adjusting trade imbalances. These tariffs target numerous countries, especially those with trade surpluses with the U.S., and have hit Chinese goods particularly hard, with some tariffs soaring to 145%.
Currently, imports from the European Union, Japan, South Korea, and other nations are affected. While most countries received a temporary 90-day pause, China was not included, leading to an immediate backlash. China retaliated with tariffs up to 125% on U.S. products and halted exports of rare earth metals vital for American manufacturing and defense. This back-and-forth has shaken financial markets, causing significant declines reminiscent of the early COVID-19 days. In response, the Trump administration has temporarily exempted popular consumer electronics like smartphones and laptops, but the economic situation remains unstable.
For the insurance industry, these tariffs do not pose a direct regulatory threat, but they create various risks that cannot be ignored. Insurers rely on stable markets and predictable economic cycles, both of which are disrupted by tariffs. This instability affects investment portfolios, business activities, and global supply chains. Insurers are now forced to rethink their asset strategies and underwriting practices while searching for ways to add value in this unpredictable environment.
The insurance sector’s exposure to tariffs is closely linked to its investment returns. Insurance companies typically hold large, diversified portfolios, especially in fixed income, to generate income for operations and claims. Although these portfolios are usually conservative, they are not immune to the volatility that tariffs bring. Increased tariffs can drive up input costs and inflation, potentially forcing the Federal Reserve to raise interest rates. While higher rates can benefit insurers by increasing yields on new bonds, they can also decrease the value of existing bonds, which is a concern for those with long-term portfolios.
Furthermore, if tariffs start to squeeze corporate profits, bond defaults could rise, particularly in sectors like manufacturing and retail. This scenario presents a dual challenge for insurers: declining asset values and increased credit risk. Equity investments are also at risk, as market volatility driven by trade uncertainty can affect stock prices and insurers’ capital positions.
The impact of tariffs extends beyond investments to the demand for insurance products, especially in commercial lines. A drop in international trade can lead to factory closures and reduced business activity, which in turn decreases the need for insurance coverage. For example, marine and cargo insurance could see a decline as fewer goods are shipped. Similarly, policies related to business property and workers’ compensation may suffer as companies in trade-dependent sectors slow down or shut down.
Tariffs can also stall capital investment, as companies hesitate to expand amid uncertainty about input costs and supply chain reliability. This means fewer new assets for insurers to cover, shrinking the overall market for insurance.
The COVID-19 pandemic has already shifted business interruption (BI) insurance into a critical coverage area. Now, political risks from tariffs are testing this coverage further. Insurers face tough questions about how BI policies should respond to government-imposed trade barriers. Are tariffs a valid reason for claims? Existing models may not adequately account for the political disruptions we are seeing today.
However, this situation is not entirely bleak. There are opportunities for innovation. As businesses look for protection against tariff-related losses, insurers can create new products tailored to these needs. For instance, custom policies could protect manufacturers and importers from cost increases or supply chain issues linked to trade policies.
On the investment side, market fluctuations caused by tariff concerns might allow well-capitalized insurers to seize opportunities. A drop in stock prices could be beneficial for long-term investors, and if managed wisely, rising interest rates could enhance overall portfolio yields. Insurers need to be strategic, balancing risk and opportunity while preparing for potential geopolitical tensions and supply chain disruptions.
As of mid-April 2025, the trade war continues to evolve, and the full impact of tariffs is yet to be seen. Insurers must adapt to this new economic landscape. Tariffs may seem distant from the insurance business, but their effects are significant. They influence asset performance, policy demand, and claims behavior. Insurers must rethink their approach to underwriting, product design, and capital allocation. The industry must recognize that systemic risks are increasingly shaped by political factors, not just natural disasters or market changes. In a time of uncertainty, the core mission of the insurance industry remains the same: assess risk, price it accurately, and be ready for losses when they arise. What has changed is the nature of those risks and the speed at which they can emerge.