Impact of Tariffs on Car Insurance Costs
Car insurance premiums are highly sensitive to tariffs, as they significantly affect the cost of auto parts and used vehicles.
Inflationary Impact
Elevated auto-related costs played a major role in the high inflation reading for January.
Tariffs and Insurance Costs
Tariffs on steel, aluminum, and semiconductors could increase the cost of imported auto parts, leading to higher repair costs. This, in turn, can drive up new and used car prices, making it more expensive to insure and replace vehicles.
Industry Observations
In January, Travelers' president for personal insurance stated that the company monitors rate adequacy but will adjust pricing only when impacts are known.
Impact of Tariffs on Replacement Parts
An estimated six out of every 10 auto replacement parts used in the US are imported, so tariffs could potentially increase claim costs for personal auto insurers by over $7 billion.
Stress-Test Analysis
The Insurance Information Institute found that a 3-7% tariff on key goods could increase average replacement costs by up to 7.7 percentage points above inflation over 24 months. Double-digit tariffs could make impacted goods economically unviable.
Potential Mitigating Factors
* Insurers may have raised rates recently, providing a cushion.
* Declining car-repair labor costs or faster repairs could reduce coverage costs.
Long-Term Impact
If tariffs increase production, repair, and insurance costs for cars in the US, the impact on insurance could linger for years.