New tariffs raise risk for insurers amid market volatility: LMA

Elizabeth Wooliston, Underwriting Director at the Lloyd’s Market Association, has noted that the tariffs recently imposed by U.S. President Donald Trump could have significant implications for insurers, including potential supply chain adjustments and shifts in overall profitability.

Wooliston noted that the effects on insurers will vary, as increased uncertainty and market volatility heighten business risks.

For those unaware, the U.S. administration’s latest wave of tariffs will be applied reciprocally, with a minimum threshold of 10%, based on the duties imposed on U.S. exports.

Chinese goods will face a 34% tariff, Indian imports will be subject to a 26% tariff, and the European Union will see a 20% tariff on exports to the U.S., while goods from the United Kingdom will incur a 10% tariff.

Additionally, President Donald Trump has introduced a 25% tariff on all foreign-made vehicles.

According to Wooliston, issues with these tariffs will differ depending on the jurisdiction, and in the longer run, whether there is an economic downturn resulting in reduced levels of economic activity and international trade which manifests in reduced demand for insurance.

“There is no doubt we are living in unpredictable times and even looking at a 12-month insurance contract could feel as if we are trying to predict a long way ahead,” Wooliston observed.

She continued, “In the U.S., as the end price of goods is likely to rise, the most obvious and immediate concern for insurers will be managing their ‘value at risk’, with brokers paying close attention to avoid underinsurance for their customers.

“At its most basic level, if tariffs make goods and spare parts more expensive, insurance claims will in all likelihood rise. This could mean that premiums may have to increase or coverage may be decreased, otherwise, insurers could face a significant potential margin squeeze.”

Wooliston additionally stated that the imposition of tariffs could create ambiguity regarding their application, which could result in increased supply chain disruption.

“Insurers do not rely solely on underwriting for profitability; they are also able to invest a portion of their capital in a range of financial instruments. Economic uncertainty leads to volatility in values of stocks and bonds, which may impact overall profitability,” she added.

In related news, analysts at KBW have indicated that insurers should be able to navigate any challenges arising from the U.S. tariffs, with industry players likely having ample time to request rate increases, which state regulators are generally expected to approve.

KBW highlighted that the tariffs will primarily affect personal insurance, as well as commercial auto physical damage, commercial property, marine lines, and surety— the latter reflecting potential financial challenges for contractors—due to increased claim costs, including higher prices for car parts, used cars, and construction materials.

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