Trump's policies could push up California wildfire costs by billions of dollars

By George Abbott

Feb 10 - (The Insurer) - President Trump’s policies on tariffs and immigration rules could add billions of dollars to the recovery costs from the recent California wildfires, according to Robert Hartwig, former president of the Insurance Information Institute.

Hartwig, now the Clinical Associate Professor of Finance in the Moore School of Business at the University of South Carolina and a member of the Federal Reserve's Insurance Policy Advisory Committee, said the policies could increase both rebuilding expenses and labour costs.

Since returning to the White House, President Trump has unveiled plans to impose tariffs on several countries including Canada and China. While it remains unclear as to whether these tariffs will be enforced – both Canada and Mexico have been granted a 30-day reprieve following commitments to secure their borders with the US – Hartwig has warned of significant implications for rebuild costs if they do.

“Seventy percent of all the lumber imported into the United States comes from Canada. This type of lumber is essential for reframing buildings and reconstructing homes. There’s no question that higher lumber prices will drive up the cost of recovery and rebuilding from the California wildfires and any disasters that occur in 2025 and potentially into 2026,” he said.

“It would be reasonable to expect recovery costs [for the California wildfires] to increase by several billion dollars,” said Hartwig.

Hartwig also pointed out that appliances are often imported from China, and replacing these could be costly.

“One of the costliest components that insurers pay for when homes and businesses are completely destroyed are things like appliances. And many of those do come from places like China, where a 10 percent additional tariff went into effect as of 4 February,” Hartwig explained.

Trump’s stance on immigration could also further drive up labour costs, as many construction workers in the US are undocumented, Hartwig noted.

“When we look at the construction industry, the worst kept secret in America is that a large proportion of them are not legal residents of this country. Nevertheless, they provide a very, very essential service,” said Hartwig.

These rising costs could leave many California homeowners underinsured, even if they believed they had adequate coverage.

“Because of the increase in costs associated with the import tax on lumber, as well as import taxes on Mexican drywall, we could wind up with rebuilding costs that are materially higher than had been anticipated when the policy was already written. The bottom line for a policyholder, a homeowner in California, could be they simply don't have enough of a limit,” said Hartwig.

In the long run, Hartwig expects insurers to pass these higher costs on to consumers by raising rates.

“I personally believe it will be completely reasonable for insurers should tariffs go into place, for insurers to file with regulators a filing for a rate increase, based on those tariffs. After all, they do know that they will increase costs,” said Hartwig.