Article
Tariffs and the insurance industry: Strategic impacts and actionable insights for insurance organizations
Apr 22, 2025 · Authored by John Romano
The tariff landscape is rapidly evolving and this information may become incomplete as changes are made.Tariffs are more than a cost-of-doing-business issue – they are reshaping how insurance carriers operate, serve customers and protect their portfolios. By strategically realigning your audit, cybersecurity, claims, compliance and pricing practices, you’ll be positioned to lead – not lag – through this next phase of economic disruption. For more information on these topics, or to learn how Baker Tilly’s insurance specialists can help, reach out to our team for up-to-date information.
As global trade policies evolve, their ripple effects are no longer confined to supply chain or import-dependent industries. Tariffs on vehicles, parts and building materials are now directly increasing claim costs across personal and commercial lines of insurance – most notably in auto and homeowners coverage. For insurance organizations, this shift demands more than observation – it calls for recalibrating internal processes, pricing models, vendor strategies and risk management frameworks. Below you will find a breakdown of the latest tariff announcements affecting insurers and key actions to take to combat the major impacts they may have on your organization.
What the data tells us: Tariffs are driving claims inflation
Recent tariff announcements have led to real, measurable and forecasted impacts across the insurance value chain:
Auto insurance claim costs
- A 25% tariff on imported vehicles and auto parts could increase U.S. auto insurance claims by $7 billion to $24 billion annually, according to the American Property Casualty Insurance Association (APCIA).
- Insurify projects that average full-coverage auto insurance premiums could rise by 19%, or $324 per policy, by the end of 2025 due to tariff-driven repair and parts costs.
- The consumer price index (CPI) for auto repair has already increased nearly 28% from January 2020 to March 2025, based on Federal Reserve Economic Data (FRED).
Homeowners insurance claim costs
- Tariffs on lumber, steel and aluminum have raised construction material costs, increasing the average cost of building a new home by $7,500 to $10,000, according to the National Association of Home Builders (NAHB).
- These material costs directly increase rebuild values and claim payouts, which may drive premiums upward.
Strategic impact areas and executive actions
Below, you will find a breakdown of the critical functions where these pressures are felt most, and how your leadership can drive forward-looking solutions.
Your internal audit function must evolve to respond to a dynamic risk landscape shaped by inflation, supply disruptions and regulatory scrutiny.
Key actions to take:
- Audit reserve-setting processes to confirm that assumptions reflect increased claims costs.
- Evaluate vendor oversight controls for claims processors and repair vendors impacted by parts shortages or price volatility.
- Update the audit universe to include tariff-related claim inflation, procurement and pricing controls.
Executive takeaways:
- Ensure your audit planning reflects macroeconomic risks, not just operational ones.
- Expand vendor reviews to include those disproportionately impacted by tariffs.
- Engage audit committees on emerging inflation-related risk factors.
Tariff disruptions often force shifts in third-party relationships – introducing new cyber vulnerabilities and operational risk.
Key actions to take:
- Conduct cybersecurity due diligence on new vendors or suppliers adopted in response to trade or price pressures.
- Enhance business continuity plans to reflect dependency on more volatile or newly onboarded vendors.
- Monitor for cyber risks associated with new digital tools or integrations brought in hastily to mitigate supply gaps.
Executive takeaways:
- Treat vendor shifts as potential cyber threats, not just procurement changes.
- Validate incident response plans against real-world tariff-disruption scenarios.
- Embed cybersecurity into all operational reconfigurations triggered by trade changes.
Check out our cybersecurity webpage for more information on how to best protect your organization against potential cyber threats.
Claims are where the financial strain of tariffs becomes visible. The escalating costs of parts and labor mean higher settlements, longer repair times and more customer frustration.
Key actions to take:
- Update claim settlement benchmarks to reflect current inflation and part costs.
- Support claims adjusters with access to dynamic cost databases that reflect rapid pricing changes.
- Monitor for fraudulent activity, especially in high-volume, high-cost claims categories.
Executive takeaways:
- Reassess your claims budgeting model and reserve allocation based on the latest market data.
- Ensure policy language and customer communication reflect these changing realities.
- Equip your teams to manage claims expectations transparently, avoiding spikes in disputes or regulatory complaints.
Our team of specialists can help solve even your most complex puzzles throughout the claims process. Refer to our webpage on the subject to learn more and reach out.
Regulators will increasingly scrutinize how insurers adapt to economic conditions. Meanwhile, enterprise risk frameworks must reflect emerging macro risks like inflation and protectionism.
Key actions to take:
- Incorporate tariff-related risks into the risk register and Own Risk and Solvency Assessment (ORSA) framework.
- Prepare documentation to justify changes in pricing, reserves and vendor models in regulatory filings.
- Conduct scenario analysis and stress tests around prolonged or escalated tariff regimes.
Executive takeaways:
- Engage with state regulators early and proactively around rate changes tied to macroeconomic drivers.
- Link enterprise risk management (ERM) and audit teams to align economic threat models and mitigation plans.
- Be prepared to explain how supply and cost volatility flows into reserve, solvency, and pricing assumptions.
Baker Tilly risk advisory specialists can assist your organization with all of its ERM needs. Click here to learn how.
Legacy loss models may not be equipped for the pace of inflation driven by tariffs. Pricing must adapt quickly – and transparently.
Key actions to take:
- Adjust loss cost projections using real-time data from market indices and claims systems.
- Stress test pricing models to understand the impact of sustained 10–20% claim inflation.
- Collaborate with underwriting and product teams to explore more responsive pricing structures.
Executive takeaways:
- Equip pricing teams with external data sources (e.g., CPI, producer prices) to stay ahead of trend shifts.
- Ensure alignment between actuarial models and real-world claim costs now influenced by tariffs.
- Build pricing flexibility into product offerings to remain competitive without sacrificing margin.
