Tariffs on Canadian goods crossing the U.S. border will go ahead on Feb. 1, according to a White House press conference held Jan. 31. The promised 25% levy will sharply impact prices paid by U.S. consumers and businesses, and Canada is expected to issue counter-tariffs on U.S. goods, sources tell CU.
The tariffs will affect a wide range of industries, says Aliya Daya, senior client executive at Acera Insurance. Her clients include companies and professionals in the food sector, building, manufacturing, tech, healthcare, entertainment and media, and more.
While no insurance coverages specifically address tariffs, there are ways to apply insurance to the problem, such as supply chain extensions available on certain types of business interruption policies, she says.
“It covers lost income or additional expenses due to delays or increased costs caused by trade action or tariffs,” says Daya. “It can address things like disruption in material availability or increased overall increased cost. It’s very, very generalized.”
Related: How to advise Canadian mid-market clients following Trump’s threatened tariffs
And business owners can take other actions to blunt tariffs.
One option is to explore local sources for materials needed for manufacturing, construction and other businesses to reduce reliance on imported goods affected by tariffs.
“I have seen [insurers] offer premium discounts for such practices,” she says. “Having a shorter supply chain is very beneficial for certain segments and industries. From a budgetary perspective, shorter supply chains are also more cost-effective. With longer supply chains, there are more links in that chain where something could potentially go wrong, causing a break.
“What many insurers want to understand is the full supply chain and making sure that you have alternatives in place in the event something within that supply chain breaks, because it’s happened locally with shorter supply chains as well.”
Investment returns
Beyond local sourcing, Daya says she’s seen home builders collaborate on seeking government support for their industry, including investments in domestic materials production.
“One of my insurers worked with my clients to put together a contractual tariff pass-through clause which relates to costs for project owners and reducing direct exposure,” she tells Canadian Underwriter.
A tariff pass-through clause ensures a supplier is not responsible for price increases caused by a tariff; instead, the buyer would incur the increased cost.
“There are various things that insurers can do, and it’s a benefit to them because it stabilizes their claims costs. It creates predictable risk profiles for underwriting, and it builds enhanced resilience overall, reducing losses and claims in the long run,” she adds.
Related: How to help your building industry clients push back on tariff threat
Sometimes it’s not simply the length of a supply chain that matters. Supply chain diversity that creates access to alternative suppliers is also beneficial.
“It goes back to that resiliency program of having a business continuity plan [so] that if ‘A’ happens, then we can switch to ‘B.’ So, if offshoring becomes a problem, maybe we should look at an alternative near-shoring solution,” Daya says.
“There are challenges to shifting to alternative markets because you have to figure out the logistics all over again. And there [can be] higher transportation costs involved.”
Feature image by iStock/wildpixel
