US tariffs set to increase insurance costs for firms across the world

New US tariffs laid out by President Donald Trump are set to increase insurance rates for companies across the world, including those that buy specialty products from the London market.

Alex Bertolotti, head of Insurance at PwC UK, said claims costs for some of the unique insurance products provided by London’s global specialty market will increase following the tariffs announced by Trump. This in turn means that the tariffs “will place pressure on premium rates for these specialist policies, likely driving up insurance costs for global businesses that require them”, he said.

“Any insurance products that rely on parts being repaired or replaced – policies such as marine cargo, marine hull, manufacturing and repair breakdown – will likely be impacted,” added Bertolotti.

PwC said the tariffs may disrupt global supply chains and impact business interruption insurance rates. Retaliatory trade measures from other countries and regions could increase the risk of claims being made under political risk insurance and see rates rise here too. The higher tariffs may also impact trade credit insurance claims and costs by putting a strain on international buyers and increasing the risk of payment defaults, said PwC.

The tariffs on imported construction materials like steel and timber will likely increase repair or rebuild costs, said Mohammad Khan, the firm’s UK head of general insurance,. “This will likely add to home and commercial property insurance costs rising,” he added. Auto lines will also be hit, PwC said.

“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,” said Khan.

He added that the impact on claims and therefore insurance rates will be exacerbated because insurers haven’t had time to prepare for the higher costs of parts and materials. The universal 10% tariffs on pretty much all goods coming into the US announced by Trump come into effect on 5 April and the higher tariffs on 9 April.

“As these tariffs have come around with little warning, insurers have not had time to stockpile goods such as car parts, which would have been one way of delaying the impact on insurance costs. This means the impact of these tariffs will likely be felt much sooner than, for example, following Brexit, which the industry had more time to plan for,” said Khan.

The European Parliament branded the move by Trump “inflation day”. It warned the US tariffs will hit both global trade and spark retaliatory measures.

Bernd Lange, chairman of the European Parliament’s international trade committee, said: “While President Trump might call it ‘Liberation Day’, from an ordinary citizen’s point of view this is ‘Inflation Day’.”

“These unjustified, illegal and disproportionate measures can only lead to further tariff escalation and a downward economic spiral for the US and the world as a whole. Because of this decision, US consumers will be forced to carry the heaviest burden in a trade war. These tariffs will only make processes and manufacturing more inefficient. They have prompted damaging uncertainty in the investment climate. Stock markets could hardly be clearer in their reactions,” he added.

Lange said the EU will not back down and will respond through “legal, legitimate, proportionate and decisive measures”.

“As the EU, we will consider which of the tools at our disposal are best suited for our response. We are not backing down. We will defend our sovereignty, and we will not change legislation that we have shaped democratically and in the interest of EU citizens, even if this displeases some US billionaires. The countries that have been targeted by these measures must respond with a united front and send a clear message to the US to end this tariff madness,” Lange said.

A global trade war is now either on the cards or already underway. And countries around the world do not have long to decide whether to try to cut a deal with Trump or respond with retaliatory measures.

The US has set down 20% tariffs on EU goods and 10% on those from the UK. It will introduce a new 34% tariff on goods from China, on top of an existing 20% levy, bringing total duties to at least 54%. The tariff will impose 24% on goods from Japan and 26% from India.

Olu Sonola, head of US economic research at the Fitch Ratings, said the measures would bring the US tariff rate to what was in place in 1910. “Many countries will likely end up in a recession,” he said. “You can throw most forecasts out the door if this tariff rate stays on for an extended period of time.”

Trump also confirmed the 25% tax on imports of all foreign-made cars. He repeated his intention to hit specific items that were exempt from the list, such as copper and pharmaceuticals, with separate tariffs.