Trade Tariffs Are Back

The renewed application of aggressive US trade tariffs is changing the economics of car insurance, even if most people do not yet realize it. US President Donald Trump’s application of a 25% tariff on imported steel and aluminum is generally understood as an action of industry and politics, but for auto insurers, it is an economic reality. Auto insurance is based on repair costs, and tariffs directly interfere with that arithmetic.

A vehicle today is no longer made from parts sourced from domestic suppliers. Canada is currently the largest supplier of aluminum products to the US, and both countries, along with Mexico, have a significant and established automotive manufacturing industry. A vehicle could have parts that have traveled several times between countries before final assembly. When tariffs are added into any part of that equation, it adds up incrementally on every vehicle.

It is not abstract theory when discussing steel and aluminum as part of auto insurance. Those two metals form part of the vehicle bodies, frames, and other parts of a vehicle. When that cost increases even slightly, it can have a significant effect when multiplied out across millions of vehicle repairs.

Why Uncertainty Pushes Auto Insurance Costs Up

Auto insurance pricing doesn’t require precise predictions, just stable assumptions. Tariffs upset the applecart here, even if generally car insurance prices tend to go down. Insurers can’t accurately forecast repair costs? They respond by adding more margin to the pricing model. This manifests as higher premium rates, discounts being reduced, or more conservative underwriting criteria, before claims costs even accelerate.

The timing is everything. Auto insurance pricing is still working through several years of increased claim severity due to inflation, labor shortages, and the intricacy of auto technology. Tariffs enter the scene just as these issues were taking hold, not as a post-crisis event.

This means insurers enter a “protection mode” as a result of the pricing models being in “recovery mode” for several years. This translates into insurers being more conservative with pricing aggressiveness. Preferred tier structures get smaller. Getting rate relief becomes more difficult to make a case for. Vehicles with increased repair complexities, particularly newer models with aluminum frames and/or sophisticated sensor systems, see more conservative pricing assumptions regardless of the driver’s personal history.

Supply Chain Disruptions Hit Claims First

Here, the effects of the tariffs are likely to be felt the quickest. Even before the premiums are adjusted, the insurers are likely to feel the pinch, especially through the length of time it takes for the repairs to be made. This is because, when the components are more expensive or hard to find, the repair shops are likely to take a long time.

The length of time taken for the repairs can also mean that the costs of rental reimbursement, storage, and administration are likely to be higher. What may have taken only two weeks may now take months. These secondary costs are not likely to go away and are likely to be borne by the insurers, which are likely to be reflected in the future premiums.

While this may not be a new phenomenon, the industry has seen this before, especially during the pandemic when the shortage of items and congestion at the ports made things difficult. Although the tariffs may be a different kind of problem, the end effect is likely to be the same: the average claim costs are likely to be higher.

How Insurers Are Responding

While insurers are not abandoning these risks with mass exits or coverage withdrawals, change is definitely in motion. Underwriting standards are becoming more stringent for vehicle risks that are costly to repair or slow to fix. Prices for comprehensive coverage are becoming less lenient, especially in areas that are already prone to higher frequency.

Deductibles are rising, optional coverage is becoming less generous, or insurers are requiring more accurate information about garaging and usage. Insurers are also quietly shifting their portfolios to lower-risk vehicles and drivers, where repair volatility is highest.

Other insurance segments are also impacted by tariffs, but in auto, we see the impact most quickly. Claims frequency is high, repair costs are near-term, and policyholders feel it at renewal time with no explanation.

What This Means for Drivers

For motorists, the impact of tariffs will not come with headlines or notifications. It will come with higher premiums, smaller discounts, or fewer flexible coverage choices. A spotless driving record may no longer be enough to counterbalance the rising costs of repairs influenced by global trade policy choices.

The change is structural in nature. The pricing of car insurance is becoming increasingly driven by factors beyond an individual’s control: supply chains, trade policies, production costs, and geopolitical risks. As long as tariffs continue to create uncertainty in the economics of vehicle production and repairs, insurers will continue to price defensively.

For motorists, this means that the days of easy rate relief are probably behind them. Even without accidents or claims, premiums are being influenced by global cost pressures that cannot be ignored by insurers. Trade policies may change with negotiations and elections, but until the economics of repairs become more stable, car insurance will remain a reflection of risk rather than relief.