Threats of a 25% tariff on Canadian goods entering the U.S. are creating confusion for Canadian businesses that either ship building components to the U.S. or import them to build homes here, but brokers can pull a few levers to help clients manage risks.

“One of those is advisory or risk mitigation services, and that’s sometimes multi-pronged, so you can do a supply chain risk assessment, where the home builder assesses vulnerabilities in their supply chain and then identifies critical suppliers likely to be affected by tariffs,” says Aliya Daya, senior client executive at Acera Insurance.

“Or you can do contractual risk transfer, where builders are encouraged to include tariff pass-through clauses in their contracts to mitigate financial exposure.”

A tariff pass-through clause ensures the supplier is not responsible for price increases caused by a tariff; instead, the buyer would incur the increased cost.

Other options include surety bonds and performance bonds, both of which can protect parties if companies they’re doing business with fail to meet contract obligations, such as delivery of goods or completion of a construction project.

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While no insurance product directly covers tariffs, Daya notes certain product extensions can act as what she calls “soft tariff coverages,” such as trade credit insurance.

“So, if a home builder carries this [coverage], they can protect their business against non-payment of risk from buyers or suppliers that are impacted by the tariffs and trade barriers,” she tells CU.

“And then there’s certain types of business interruption [coverage] that includes supply chain endorsements that cover financial losses from disruptions caused by trade barriers, such as delays in material. Those [act] kind of like extensions and softer coverages of existing products but they’re not full tariff coverage.”

If implemented, the 25% U.S. tariff could be in place as soon as Feb. 1 and may lean to counter-tariffs from Canada.

Buy now, and buy more

Builders looking to manage premium costs can also work to diversify their sources of construction materials and seek alternate markets for key products like lumber, drywall, lighting and plumbing fixtures, etc. Plus, builders can increase their inventories of construction components to control costs while the impacts of a potential U.S.-Canada trade war shake out.

“The U.S. provides a lot of steel, aluminum and other finished components for Canada, and [potential tariff-related increases in] those costs would mean the builders may need to pass those increased costs on to their consumers, which leads to higher housing and construction costs,” Daya says.

Bulking up on stored goods would also mean construction companies on either side of the border would need to “secure coverage for higher inventories held in response to trade barriers,” she adds.

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Insurance for damages from fire and water, and theft from warehouses would be among the coverages that should be increased, and brokers and insurers would need a thorough understanding of what their building industry clients are placing into stock.

“That would then allow them to have premiums that they could actually afford to pay in this environment, because if someone’s going to bulk up on inventory, then that means that they’re going to expend a lot of capital,” says Daya.

“We’re [brokers and insurers] looking for things like business continuity plans. We’re looking for contractual risk transfer, copies of those contracts showing all of that would actually be positively impacted on the client’s insurance, the broadness of their insurance product, as well as their premium.”

The objective, she says, is to ensure everything’s being done to address controllable internal mechanisms in order to counter external actions like tariffs from across the border.

“We always try to be very positive about this. But we, as a country, are in this nebulous space at the moment where we don’t really know what’s going to happen,” says Daya. “Everybody is extremely anxious and trying to prepare and make plans, but you just don’t know what’s going to happen, whether it’s all bluster or if, as of February 1, we’re going to have tariffs.”