USC's Hartwig predicts US tariffs will increase claim costs

By George Abbott

Aug 13 - (The Insurer) - U.S. President Donald Trump's new import tariffs are likely to push up claims costs in property and auto lines, according to Robert Hartwig, professor of finance and insurance at the University of South Carolina, and Joel Wood, CEO of the Council of Insurance Agents & Brokers (CIAB).

Speaking to The Insurer TV, Hartwig said tariffs on aluminium, steel and a range of manufactured goods were already driving up replacement and repair costs for vehicles and property.

“Unambiguously, tariffs will drive up claims costs, particularly for property and auto lines, and we’re already beginning to see that in the data,” he said.

Trump's tariffs on U.S. imports from individual countries took effect on August 7, raising the average U.S. import duty to its highest level in a century, with trading partners facing tariffs of 10% to 50%.

Since April, the cost of motor vehicle parts in the U.S. has risen at an annualised rate of around 6%, while construction material prices climbed 4.3% in the first six months of 2025, Hartwig said. He added that both measures are running ahead of general inflation and could rise further if tariffs remain in place.

“These are primary inputs into motor vehicles and all kinds of construction projects,” he said, adding that insurers could also see reduced demand in lines sensitive to trade volumes, such as marine, cargo, aviation and trade credit.

TEMPORARY MARGIN IMPACT

Hartwig noted that profit margins could decrease in some lines, but he expects any impact to be temporary as carriers reprice.

“This is not like the supply chain shocks during COVID, which were rapid, large in magnitude and unanticipated. Here, insurers know what’s coming and can plan for it. Once they see it in their claims data, they’ll build it into rate changes for 2026,” he said.

While the near-term effect will be higher premiums for consumers, Hartwig said insurers are well positioned to pass on costs. “The costs will be borne by U.S. consumers and importers – not the exporters. Once companies see the tariffs are likely to be permanent, they’ll fully pass them along,” he added.

CONCERNS OVER SUPPLY CHAIN AND NATIONALISATION

Wood added that members of the CIAB are already warning of price pressures on claim-related parts, particularly in auto and manufacturing-related claims.

He said there were concerns tariffs could lead to a nationalistic shift in insurance buying patterns, with companies seeking domestic carriers to align with reshored supply chains.

“If you’re a Canadian company, you may prefer to have a Canadian insurance carrier – it just makes sense. We could see more domestic retention of risks,” Wood said.

He also pointed to potential strategic shifts in global trade relationships that could alter insurance flows, with some international members of the CIAB warning tariffs might strengthen the Chinese insurance market.

OPPORTUNITIES IN RESHORING

Despite these headwinds, Wood sees potential upside for parts of the U.S. insurance market.

“There could be opportunities in the narrow credit trade market, though insurers are being very cautious about expanding there given the uncertainty. Whenever you have reshoring in the domestic marketplace, that creates opportunities for brokerages, insurers and reinsurers,” he said.

Wood also noted that while initial fears over the tariffs’ economic impact have eased, the effects could take longer to fully materialise. “The perception was the sky was going to fall, but the economy is holding up. Inflation is still relatively low, and many businesses have stockpiled inventory. The full impact hasn’t yet taken hold,” he said.