U.S. President Donald Trump today imposed a 25% general tariff on Canadian goods exported to the United States, starting a trade war expected to increase Canadians’ insurance premiums over the next year.
Canadian Prime Minister Justin Trudeau today announced immediate retaliatory tariffs on $30 billion worth of U.S. goods — including meat and poultry, liquor, plastics, rubber and tires, flooring wood, particle board, fibreboard, plywood, floor panels, carpeting, textiles, clothing, ovens, fans, refrigerators, laundry machines, water heaters, hand tools, machinery and plant equipment, motorcycles, aircraft, weaponry, and lighting.
Trump has also announced he intends to impose 25% tariffs on all steel and aluminum imports, including from Canada, scheduled to take effect Mar. 12. Some auto industry analysts have noted a tariff war could increase the average price of a car by $3,000, and some larger SUVs could cost an additional $9,000 or more.
Trudeau said Canada will proceed with more retaliatory measures in three weeks’ time, aiming additional trade tariffs at a further $125 billion worth of U.S. goods. It will also challenge Trump’s tariffs by filing dispute resolution claims at the World Trade Organization and through the USMCA [U.S.-Mexico-Canada trade agreement], Trudeau told reporters Tuesday.
“Our tariffs will remain in place until the U.S. tariffs are withdrawn and not a moment sooner,” Trudeau said. “And should these tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures, measures which will demonstrate that there are no winners in a trade war.”
Higher premiums
Assuming new taxes on goods crossing the U.S.-Canada border will be passed onto consumers, Canada’s property and casualty insurance industry has warned the additional cost of rebuilding houses and repairing vehicles would likely play out in increased claims costs and, thus, higher insurance premiums.
“Tariffs will have an impact on insurance as they add additional costs to the goods used in replacing and repairing homes, cars, and businesses. While we don’t yet have a precise picture of the scope of these effects, over time, tariffs will hurt consumers and families on both sides of the border,” the Insurance Bureau of Canada told Canadian Underwriter in a statement Tuesday.
“Our initial analysis indicates tariffs could impact all lines of P&C insurance. Auto insurance is likely to be more impacted due to the highly interconnected nature of Canadian and U.S. auto and auto parts supply chains. However, home insurance may also be impacted due to likely increases in the cost of materials used in replacing and repairing homes.”
IBC adds insurers are working to mitigate the impact of tariffs. “For example, they may seek substitutes for American goods in their supply chains. Ultimately, the expectation is that claims costs on all lines of insurance will be impacted, and this could have a corresponding impact on consumers.”
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Which premium hikes will happen first?
Fitch Ratings predicts tariffs will first be felt in the property lines since home and commercial property insurance premium rate-setting is not subject to government regulation.
“Home insurance premiums will reflect the changes more quickly: Home insurance premiums are not regulated by an authoritative body such as FSRA [Financial Services Regulatory Authority, Ontario’s insurance regulator],” Fitch says. “This means that insurers can react more quickly to changes in claims costs and adjust insurance premiums accordingly.”
Any premium increases caused by a trade war are likely to “compound increases” Canadians have already seen in auto insurance largely due to auto theft, and home insurance because of the country’s record-setting $8.9 billion in natural catastrophe losses last year, the ratings agency notes.
“Any increase in premium prices from tariffs will likely be in addition to premium increases driven by theft, inflation and climate change.”
It will likely be a year before the impact of tariffs will be reflected in auto insurance premium increases, Fitch says. “There is a significant lag between an event that affects premiums and the changes in auto insurance premium prices, often more than a year.
“Insurance companies will adjust premium prices based on claims costs — the amounts paid out to replace or repair vehicles. In Ontario, auto insurance premiums are regulated, meaning that insurance companies must provide the reasons for their proposed premium increases, which are then submitted for approval to the FSRA, a process that can take months,” Fitch says.
“After a rate increase has been approved, a consumer’s auto insurance premium may change on renewal, which could take up to a year.”
One thing to note is that insurance rate regulators will have an eye on the impact premium increases may have on Canadians who are juggling higher costs for goods and services across the board, says a bulletin from KPMG about the potential impact on tariffs.
“Provincial rate regulators will need to balance needed rate increases with political pressures to provide consumers relief from inflation,” KPMG’s bulletin states.
Feature image by iStock.com/mesh cube
