Analysts at AM Best have raised concerns about the impact of new U.S. tariffs on imports from Canada and Mexico, as well as increased tariffs on China. They warn that these changes could negatively affect the insurance industry, especially for homeowners and auto insurance.
Sridhar Manyem, a senior director at AM Best, explained that the U.S. auto industry heavily relies on supply chains with Canada and Mexico. Disruptions caused by tariffs could lead to higher costs and inflation, which would be bad news for insurance carriers. Modern cars are more expensive to repair and replace due to advanced technology, making the situation even more critical.
For homeowners, the tariffs are likely to increase the cost of building materials, like lumber. This means that when it comes time to rebuild after disasters, the expenses could be much higher than expected.
AM Best also noted that tariffs could create global economic uncertainty. As countries respond with their own tariffs, the flow of goods and services might be disrupted. This could trigger trade credit insurance and political risk insurance, leading to instability in pricing and availability of goods. As a result, businesses might face challenges in paying for or providing necessary services.
In a related development, President Donald Trump announced a delay in implementing a 25% tariff on many imports from Mexico and some from Canada until April 2. This follows a previous one-month delay for U.S. automakers.
The American Property Casualty Insurance Association (APCIA) has expressed concerns, stating that these tariffs disrupt recovery efforts for many homeowners dealing with recent natural disasters. David A. Sampson, APCIA’s CEO, emphasized that while tariffs can be useful, the broad nature of these new tariffs could hurt the very families and businesses they aim to protect.
AM Best recently changed its outlook for the U.S. personal auto insurance segment from negative to stable, as insurers have been aligning rate increases with loss costs. However, they cautioned that any inflation from tariffs on Canada and Mexico could still negatively affect the auto insurance market due to rising prices and shortages of parts.
Overall, the imposition of these tariffs could have far-reaching effects on both the insurance industry and the broader economy, impacting costs for consumers and businesses alike.