There is a 10% tariff on most imported goods into the U.S. as of April 5. The Trump administration announced a revision to its tariff policy on April 9, including a tariff of up to 145% on some goods from China.
Jonathan Todd, partner at Benesch Law and Phil Nester, senior managing associate at Benesch Law, shared responses on how this could impact the insurance industry.
These responses were shared on April 11 and reflect the tariff situation at that time.
How do current and proposed tariffs impact the cost of insurance claims?
Todd: New tariff actions in 2025 are expected to result in dramatically increased market values, replacement costs, and repair costs of property. Anything built or manufactured in the United States from imported raw materials or parts, or imported as a finished good, will face increased cost pressures. Most items imported into the United States after April 5th or 9th will bear additional duties of 10%, which was recently adjusted. The 10% rate is scheduled to remain in place until July 9th. Products from China have a higher 125% reciprocal tariff at this time. The key here is that in some cases those duty burdens will compound with other tariff actions resulting in net duties that are far higher. This will not always correlate to a one-for-one percentage increase in costs of items at ultimate retail sale although appreciably higher costs are realistic near term.
How do current tariffs impact the insurance industry? Can you provide examples of which sectors?
Todd: The insurance industry is grappling with the effects of escalating tariffs, which are driving up costs for imported goods, repairs, and replacements. These impacts are particularly pronounced in sectors reliant on foreign materials and products such as automotive, construction, agriculture, and consumer retail, where higher duties are inflating insured values and claims costs. The auto industry is the clearest simple example. Automobiles presently face 25% duties when imported into the United States from outside the USMCA territories. After May 3rd, automobile parts will also bear 25% duties when imported from outside the USMCA territories. This means that both the replacement cost and repair cost of vehicles can be expected to rise as existing domestic inventories are exhausted. Similar examples can be found in sectors ranging from construction to consumer retail.
What are the potential long-term impacts of prolonged tariffs?
Todd: The timeline and magnitude for our current geopolitical environment remains to be seen. Near term, there may be changes in buying habits for lower-cost industrial and consumer options. It is also fair to say that insurers need to prepare for a possible increase in claims filing where insureds or their third-party claimants previously would have resolved matters due to higher liquidity. The reciprocal effect of this is that policy renewals and procurement will drive premiums and deductibles higher. Longer term, if the President is successful in motivating the reshoring of domestic manufacturing capacity (or nearshoring once there is a resolution to tariffs against Canada and Mexico), while reducing income tax burden, then the economic environment may take on a very different character to reshape the last decades of globalization.
Are there sectors within the insurance industry that won't be affected?
Nester: Tariffs will cast a long shadow across the insurance industry. However, certain sectors will initially prove to be more resilient than others by the nature of their product lines. For example, the pricing models and risk profiles actuaries use for life and health insurance consider fewer economic factors that are tied to the valuation of tangible goods, which are the current tariff targets. If the President continues to use tariffs as a longer-term economic strategy, the breadth and magnitude of their impact will be felt in less-obvious sectors as well. For example, the nature of intangible risk for which cybersecurity insurance provides coverage may appear to be insulated from tariffs, but changes in overall economic trends affecting consumer spending and business investment will cause indirect consequences that will be felt in all lines of insurance. Our long-term view is that the unwinding of the global economy will trigger a resetting of the insurance industry that will need to adjust to underlying risk profiles affected by the impact of prolonged tariff policies.
How long does it take for increased tariffs to translate to increases in insurance premiums?
Nester: The timeline for tariff increases to translate into higher insurance premiums is nuanced, but we expect there will be a three to six month lag due to regulatory approval processes at the state level. Inventory turnover in sectors where global supply chains play a critical role and swift adjustments are not feasible supports this timeline as well. Insurers are monitoring regulatory developments and supply chain dynamics to refine their underwriting strategies and pricing models. A shorter-term surge in insurance premiums is expected in sectors that are heavily reliant on imported goods, but the longer-term effects will depend on retaliatory measures in response to tariffs and the broader recalibration of global trade relationships.
Are there legal and regulatory considerations for insurance carriers to be aware of?
Nester: Insurance carriers will need to adjust their financial reporting, underwriting processes, and compliance frameworks to incorporate cost increases into their statutory accounting principles' (SAP) reserve surplus calculations and to disclose supply chain risks under FASB accounting standards. Changes in rate filings that are tied to tariff-inflated costs will be scrutinized by state regulators, so insurers need to prepare for the disclosure of actuarial justifications for premium adjustments upon request.
We expect regulators will also take a hard look at changes in policy language that support tariff-adjusted valuations as well as exclusions that are linked to supply chain disruptions. Insurers that fail to implement such changes increase their solvency risks, claims disputes, and regulatory penalties from an environment where there will be heightened scrutiny.
Anything else you would like to share?
Todd: Tariffs will increase insurance claims costs and market volatility, forcing insurers to raise premiums, reduce coverage, or adjust their asset investments to protect margins amid economic uncertainty. Insured satisfaction with claims response and with premiums on new policies will quickly emerge as the challenge for insurers to retain their policyholders. Even if this new trade policy yields near-term price volatility, and price escalation, this volatility will of course be blunted by policy limits. Response beneath policy limits very well may increase due to the higher market, replacement, and repair costs, which in the aggregate may be significant. Still, appropriate policy limits on issued policies and appropriate underwriting of new policies will mitigate the impact of these factors for insurers, as disciplined risk management will be needed for insurers to navigate tariff-driven disruptions while balancing policyholder retention and profitability.
