The Impact of Tariffs on Insurance Claims
25 March, 2025-
Paul Isaac -
EMEA
USA
Canada
APAC
LATAM
We have heard the current incumbent of the White House refer to tariffs as “a great negotiating tool”, “a beautiful thing” and “taxes on foreign countries”.
While the justification of high tariffs used to be to punish unfair trade from China, recent announcements suggest that most of the US’s closest allies will be significantly impacted.
Steel and Aluminium Prices Impact
In the simplest sense, tariffs are taxes on imported goods. They can be payable at different times, but generally before goods are released from customs. In the UK, this means at the same time as import VAT is paid (although it can be deferred).
When we think about insurance claims, the impacts are far reaching. At the time of writing, the US has imposed a flat 25% tariff on all steel and aluminium (or aluminum). This is on top of the threat to double the same tariff on imports from Canada to 50%. The current price for aluminium according to the LMA is $2,705 per metric ton – so you do the maths. This is a significant increase for any US business relying on steel and aluminium from overseas.
The US imported 4.8 million metric tonnes of aluminium in 2024[1], with 3.92 million metric tonnes coming from Canada[2]. It imported 26.5 million metric tonnes of steel[3].
By contrast, the US produced 79.4 million metric tonnes of steel[4] in 2024, meaning it imported around 25% of raw steel volumes. The US is more reliant on Aluminium imports though with around half of all aluminium used (including recycled product) coming from overseas[5].
The question must be – regardless of the intention to increase internal steel and aluminium production – it is unlikely that this will be possible overnight, let alone in anything but the medium to long term. So, what happens until then?
Industry Impact
Around half of the world’s steel is used in construction across building and infrastructure sectors. Automotive, machinery and equipment, and energy sectors also feature highly.
In terms of the uses for aluminium, the majority of volumes is used in automotive, aerospace, marine and rail sectors, as well as construction. Packaging is also a significant sector with electrical, machinery and equipment and a variety of other sectors.
What are the implications in terms of insurance then for these sectors?
Insurance Impact
The most obvious impact is probably on property damage related claims. The cost of repairs and replacements are unlikely to do anything but skyrocket. The cost of raw product and components is likely to increase and potentially impact the cashflows of manufacturers / construction companies that need to buy volume in advance. In terms of construction, significant increases in project costs and therefore loan amounts could materialise.
With the rising cost of related claims, over time, insurers may have to pass these increased costs onto policyholders in the form of higher premiums.
It is not surely about raw material / input prices though. Tariffs also disrupt global supply chains, causing shortages of materials and resultant delays in obtaining replacement / repair parts. With disruption to supply chains, the logical impact is a longer timeline in terms of repair / reinstatement periods.
As forensic accountants, we have countless examples of how time can be the biggest driver of quantum when it comes to claims. With each day of delay, there is an increased impact on sales and potentially the loss of important customers. With delays in building reinstatement, there can be increases in the cost of renting third-party premises, outsourcing, and inefficient production processes.
Global Impact
While the above generally refers to the impact of US tariffs on US businesses, the reality is that Canada, Europe, and all affected countries feel that they are put into a difficult position with a long-time close trading partner. And that means retaliatory tariffs – which means that the impact is not likely to be limited to US companies.
We wait to see what the EU response is – and that of Canada, Mexico and all other countries that are impacted. At a time when inflation globally has been high, in 2024 it saw a decline from 6.7% to 4.5%, and an expectation from the IMF of a further reduction to 3.5% in 2025[6]. If this tariff spat continues, that is likely to change.
It may be that businesses that are less reliant on imported goods face less financial uncertainty than those who rely heavily on imports and are at risk of higher costs and supply chain disruptions. But the impact is likely to be further reaching than this, impacting demand for exports globally and therefore affecting growth globally. The financial markets seem to have reacted negatively which can lead to uncertainty – and therefore perceived increased risk in investment, volatility in exchange rates, and interest rates. It just isn’t all that simple!
However this plays out, the impacts will be far-reaching, and insurers should have their eyes open when renewing policies, quantifying sums at risk and reserving claims.
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