Tariffs Will Drive Up Costs For Insurance Markets: Experts
By: Gavin Souter and Claire Wilkinson
Insurance and financial services were not included in the far-reaching tariffs President Trump announced Wednesday, but insurance experts on both sides of the Atlantic warned that the taxes will increase costs for insurers and buyers.
Higher costs for imported auto parts and construction materials will likely drive up claims costs, and more red tape at ports of entry could slow supply chains, also driving up costs, they said.
While the Trump administration has long signaled increased tariffs on goods imported to the U.S., the size and reach of the taxes were only revealed on Wednesday. Among the changes, the U.S. will impose a 10% tariff on all imports beginning April 5 and higher tariffs for specific countries, including 46% on imports from Vietnam, 34% on China, 32% on Taiwan and 20% on the European Union.
“The tariffs are more sweeping than I would have anticipated,” said Robert P. Hartwig, a professor of finance and director of the Center for Risk and Uncertainty Management at the Darla Moore School of Business at the University of South Carolina.
The American Property Casualty Insurance Association said it is still reviewing the details of the tariff announcement but noted that 60% of auto replacement parts used in U.S. auto repairs are imported from Canada, China and Mexico.
Tariffs could also drive up the costs of new cars, which would result in higher insurance costs, APCIA noted.
Based on estimated increased costs of autos, the tariffs could lead to about $11 billion in additional personal auto insurance premiums, Mr. Hartwig said.
“It would be billions more additional dollars in commercial auto,” he said.
Commercial policyholders have already seen significant increases in auto insurance rates over the past 10 years as claims costs have risen.
The tariffs could also increase the cost of insurance claims by extending the time it takes to import goods, Alex Bertolotti, head of insurance at PricewaterhouseCoopers LLP in London, said in a statement.
“Anything that extends the time taken to undertake a repair increases the expense of an insurance claim, and imposing tariffs typically leads to supply chain pressures as it takes longer to import goods due to the time taken to administer or implement the tariff,” he said.
Disruptions to supply chains could also drive up the cost of business interruption claims and, if they lead to canceled trade contracts, also hit trade credit and political risk insurers, Mr. Bertolotti said.
The tariffs could also reduce the demand for some specialty coverages, Mr. Hartwig said.
“You would imagine there would be far less need for ocean marine coverage. You would imagine there would be far less need for maybe inland marine coverage, where you might be covering ports, for instance, or transportation from ports and these kinds of things to and from,” he said.
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