The Impact of Tariffs on the Commercial Insurance Market

Published in All Insurance Industry Insights on Thursday, March 27, 2025 by Don Patnode

Economic experts assert that tariffs can have various consequences on the commercial insurance sector. It’s imperative for businesses to understand these implications and take steps to limit their exposures. This article further explores how tariffs influence the commercial insurance sector and outlines strategies to help companies mitigate related risks.

How Tariffs Influence the Commercial Insurance Sector:

Tariffs may impact the commercial insurance market in a variety of ways, including the following:

• Higher Premiums – Tariffs may raise premiums for commercial property, auto, and business interruption insurance.
  • Property & Auto Insurance – Increased costs for materials (e.g., steel, lumber) and auto parts can drive up repair and replacement expenses, prompting insurers to raise rates or tighten underwriting.
  • Business Interruption Insurance – Rising material costs can disrupt supply chains, increasing business vulnerability and leading to higher premiums.

• Rising Claim Costs – Higher material and labor costs may inflate property and auto repair expenses, compounding claim payouts. Large claims could leave policyholders underinsured with significant out-of-pocket costs.

• Market Volatility – Changing trade policies may force insurers to reassess risk models, potentially leading to shifts in coverage availability, pricing, and underwriting standards.

Risk Mitigation Strategies:

In light of rising tariff concerns, it’s crucial for companies to implement strategies to help reduce associated exposures. Here are some risk management practices for businesses to consider:

• Diversify Your Supply Chain: First and foremost, businesses should perform detailed risk assessments to detect potential vulnerabilities in their supply chains, particularly pertaining to international trade and tariffs. Upon identifying their unique risks, companies may benefit from diversifying their supply chains to limit trade-related exposures. This may entail selecting alternative suppliers in locations with more favorable trade practices or shifting production operations through methods such as nearshoring or reshoring. The former method involves moving production facilities from overseas countries to regions located near a company’s headquarters or primary markets, whereas the latter method center around relocating these facilities to a company’s home country. Both methods can help limit dependencies on tariff-heavy imports and promote supply chain resilience.

• Make operational improvements: In addition to diversification, certain technology-driven operational improvements could help businesses strengthen their supply chains and reduce trade-related risks. This may include investing in digital solutions (e.g., artificial intelligence) and data analytics to bolster supply chain visibility as well as developing in-depth contingency plans to address different supply chain disruption scenarios resulting from tariffs. Furthermore, companies should work with legal professionals to ensure compliance with ongoing shifts in global trade policies.

• Modify contracts: When establishing contractual agreements with suppliers and other vendors, businesses should carefully evaluate the wording in these documents and include specific clauses regarding international trade. Such clauses should allow for cost sharing, which divides the responsibility of paying tariff-induced expenses from imported goods among multiple parties.

• Leverage Tariff Mitigation: Businesses can reduce tariff impact by sourcing materials from regions with favorable trade agreements, operating in foreign-trade zones (FTZs) to defer or lower tariffs, and using tariff engineering (e.g., adjusting materials, designs, or classifications) to cut import costs.

• Review insurance policies: Businesses should clearly document their tariff-related risk management strategies for insurers, as this can help create a more accurate projection of their exposures and lead to better coverage options. As global trade practices continue to evolve, companies should reach out to trusted insurance professionals to review their policies, maintain adequate coverage and identify any cost-saving opportunities. Depending on their exposures, businesses may also need to adjust their deductibles or explore self-insurance options for specific risks. Some companies may even benefit from purchasing specialized coverage, including trade credit and supply chain insurance.

If you have any questions or need further clarification, please contact Don at 319-234-7060 or dpatnode@pdcm.com

Written by
Don Patnode