Supply Chain Disruptions: A Key Factor to Consider
The implementation of U.S. tariffs on Canadian goods is a growing concern for the property and casualty insurance industry, particularly in the supply chain sector. The tariffs, which are expected to have a significant impact on the Canadian economy, could lead to increased costs for auto parts, building materials, and other essential goods.
- Auto parts: The cost of auto parts could increase significantly due to the tariffs, leading to higher indemnity expenses for insurance companies.
- Bulk goods: The tariffs could also impact the cost of bulk goods, such as lumber and grains, which are essential for the construction and agriculture industries.
- Other essentials: The tariffs could also impact the cost of other essentials, such as food and fuel, which are critical for various industries.
These disruptions could extend to other areas, including claims-related expenses. Insurance companies may experience delays in processing claims, leading to increased costs for alternative living expenses, business interruptions, rental car costs, and storage costs.
Impact on Commercial Auto Insurance
The tariffs could also impact the commercial auto insurance market, particularly in the auto liability segment. Clients exposed to U.S. auto risk may see upward pressure on primary limits before excess casualty insurers will attach to programs.
| Rate | U.S. Auto Insurance | Canadian Auto Insurance |
|---|---|---|
| Primary Limit | $10,000 | $8,000 |
| Excess Casualty | $50,000 | $30,000 |
The commercial auto insurance market is showing moderate signs of improvement, largely driven by increased competition in the marketplace. While appetites have broadened, outcomes are largely based on account performance as insurers remain heavily focused on profitable returns.
Challenges Ahead
Despite signs of improvement in the commercial auto space, high claims costs continue to impact the market. Canadian auto theft claims dropped by 19% in the first half of 2024 compared to 2023, but claims have increased 138% over the past decade.
“High claims costs are a challenge for the commercial auto insurance market, and the impact of the U.S. tariffs could exacerbate this issue.” – Aon
The auto sector may be impacted by increased replacement costs, exasperating already challenged claims costs. It is too soon to predict the full impact of the U.S. tariffs on the market, but the auto sector may be affected by:
- Increased replacement costs: The cost of replacing vehicles could increase due to the tariffs, leading to higher indemnity expenses.
- Exasperated claims costs: The impact of the tariffs could exacerbate existing claims costs, making it more challenging for insurance companies to manage risk.
Conclusion
The implementation of U.S. The tariffs could lead to increased costs for auto parts, building materials, and other essential goods, as well as delays in processing claims and increased costs for alternative living expenses, business interruptions, and rental car costs. The impact of the tariffs on the commercial auto insurance market is uncertain, but it may be impacted by increased replacement costs and exasperated claims costs. While signs of improvement in the commercial auto space are evident, high claims costs continue to be a challenge for the market.