Analysts at AM Best warned that the planned imposition of U.S. tariffs on imports from Canada and Mexico, along with increased tariffs on China, will have a negative effect on the insurance industry—particularly impacting the U.S. homeowners’ and auto lines of business.
“Given the supply chains that the U.S. auto industry has established with Canada and Mexico, any disruptions and inflationary impacts due to the tariffs will be a credit negative for carriers,” Sridhar Manyem, senior director at AM Best, said in a statement Thursday. “The more recent fleets of cars come equipped with advanced engineering and electronics and cost more to repair and replace.”
On the homeowners’ side, the rating agency said tariffs will cause building materials such as lumber to become more costly, and “replacement costs will increase beyond expectations.”
“Tariffs will cause global economic uncertainty as retaliatory and reciprocal measures are implemented,” AM Best said . “As the flow of goods, services, and commerce is disrupted, trade credit insurance and political risk insurance may be triggered because of instability (i.e., solvency and sales issues due to pricing and availability) and could result in an unwillingness to pay or provide goods or services.”
Thursday afternoon, the President Donald Trump delayed implementation of the 25% tariffs on many imports from Mexico and some from Canada until April 2. His administration previously announced a one-month reprieve from the tariffs for U.S. automakers.
Related: APCIA: Tariffs to Hurt Families and Business Owners, Affect Affordability
Industry trade group The American Property Casualty Insurance Association (APCIA) previously issued a statement calling the tariffs on Mexico, Canada and China a disruption as many homeowners attempt to rebuild after recent natural catastrophes.
“Tariffs can be effective tools of government if used with precision,” said David A. Sampson, CEO of APCIA. “However, these new tariffs are so broad that they are likely to hurt families, individuals, and business owners they are meant to protect.”
In November, AM Best revised its market segment outlook for the U.S. personal auto segment to stable from negative as personal auto insurers’ rate increases became more closely aligned with loss-cost trends.
“Any inflationary impact due to the tariffs imposed on Canada and Mexico, which are closely interconnected with the U.S. auto industry, will be negative as shortages and increased prices for parts will be reflected in loss-cost trends,” AM Best said. “This is particularly impactful given the close linkage of personal auto lines.”
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