Analysts at AM Best have raised concerns that the proposed U.S. tariffs on imports from Canada and Mexico, coupled with heightened tariffs on Chinese goods, are expected to negatively affect the insurance sector. The U.S. homeowners’ and auto insurance lines are likely to bear the brunt of these impacts, according to the rating agency.
Sridhar Manyem, senior director at AM Best, highlighted in a statement on Thursday that the U.S. auto industry’s deep integration with supply chains in Canada and Mexico means any disruptions or inflationary pressures caused by tariffs will harm insurers. “Modern vehicles are equipped with advanced engineering and electronics, making them more expensive to repair and replace. Tariffs will exacerbate these costs, creating a credit-negative environment for carriers,” Manyem explained.
For homeowners’ insurance, AM Best warned that tariffs will drive up the cost of building materials, such as lumber, leading to higher-than-anticipated replacement costs. This could strain insurers as they adjust to the increased expenses associated with property repairs and rebuilding efforts.
The rating agency also emphasized that tariffs will introduce significant global economic uncertainty, particularly as retaliatory measures are likely to be implemented by affected countries. “Disruptions in the flow of goods, services, and commerce could trigger trade credit insurance and political risk insurance claims due to instability, such as solvency and sales issues stemming from pricing and availability challenges,” AM Best noted. This instability may result in defaults on payments or a reluctance to provide goods and services, further complicating the insurance landscape.
In a related development, President Donald Trump announced a delay in the implementation of 25% tariffs on many imports from Mexico and some from Canada, pushing the effective date to April 2. This follows an earlier one-month reprieve granted to U.S. automakers. However, the broader implications of these tariffs remain a concern for the insurance industry.
The American Property Casualty Insurance Association (APCIA), a prominent industry trade group, has also voiced its opposition to the tariffs. David A. Sampson, CEO of APCIA, criticized the tariffs as overly broad and potentially harmful to the very families, individuals, and businesses they are intended to protect. “Tariffs can be effective when used precisely, but these measures are likely to cause more harm than good, especially as many homeowners are still recovering from recent natural disasters,” Sampson stated.
AM Best had previously revised its outlook for the U.S. personal auto insurance segment from negative to stable in November, citing improved alignment between insurers’ rate increases and loss-cost trends. However, the rating agency cautioned that the inflationary effects of tariffs on Canada and Mexico, both critical partners in the U.S. auto industry, could reverse this progress. “Shortages and higher prices for auto parts will likely drive up loss-cost trends, negatively impacting personal auto insurers,” AM Best warned. The close ties between the U.S. auto industry and its North American neighbors make this segment particularly vulnerable to tariff-related disruptions.
In summary, the proposed tariffs are expected to create significant challenges for the insurance industry, particularly in the auto and homeowners’ lines. The resulting inflationary pressures, supply chain disruptions, and global economic uncertainty could lead to higher costs for insurers and policyholders alike, undermining the stability of key insurance markets.
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