As tariffs on imports rise in the United States, businesses are feeling the financial pinch. This situation is driving up the demand for trade credit insurance, which helps protect companies against the risk of nonpayment from buyers. The changes in the market are prompting insurers to rethink their strategies as they face new economic pressures.
Currently, tariffs on certain Chinese imports have soared to as high as 145%. This has left many businesses involved in international trade struggling with tighter profit margins, delays in payments, and greater risks of not getting paid at all. In response, more companies are seeking trade credit insurance to safeguard their finances. Hub International, a global insurance brokerage, reports that lenders are likely to tighten credit terms, making this type of insurance even more crucial for covering foreign receivables.
However, this surge in demand could lead to challenges for insurers. If the financial strength of buyers continues to weaken, insurance companies may find it hard to keep up with the growing number of policy requests. AM Best, a global credit rating agency, has noted that the current climate is making underwriting more complicated. Increased credit risk and uncertainty in the economy could affect insurers’ financial stability.
The overall economic landscape is also under stress. Allianz has described the current situation as a full-scale trade war, with global tariffs averaging 25.5%, a rate not seen since the 1890s. Tariffs on Chinese products are around 130%, while European goods face an average tariff of 9%, excluding certain sectors like semiconductors and pharmaceuticals.
Legal experts are now looking into how these trade disruptions impact various insurance policies. Coverage areas such as political risk, liability for directors and officers, builder’s risk, subcontractor default, and marine insurance may all be affected. While tariffs do not directly cause physical damage, the financial fallout can lead to claims under these policies.
The American Property Casualty Insurance Association has raised concerns that sectors like construction and personal auto insurance could see an increase in claims costs due to these economic pressures. AM Best has echoed these worries, linking the rising costs from tariffs to more severe claims and challenges in underwriting.
Looking ahead, Allianz predicts that average tariffs in the U.S. may decrease to about 10.2% by late 2025 if successful trade agreements are reached. Until then, tariffs on auto parts, steel, and aluminum will remain, despite a temporary pause on additional duties.
AM Best has warned that prolonged uncertainty could change how risks are perceived, which might affect market stability. Allianz forecasts a global GDP growth rate of 2.3% this year, with a significant rise in U.S. insolvencies expected. The firm also anticipates inflation in the U.S. will peak at 4.3% by summer, diverging from trends in Europe.
In light of these developments, PwC US has advised insurers to stress-test their portfolios and prepare for the long-term effects of tariffs and inflation by adjusting their underwriting models and pricing strategies. As the situation evolves, many are left wondering how these trade issues will ultimately affect insurance pricing, claims, and credit markets.