The Impact of Recent Tariffs on the Property and Casualty Insurance Sector

Author: Seth Cole, Alliant

 

Executive Summary

Over the past few weeks, the U.S. has introduced sweeping tariff measures that are targeted to apply to all goods imported into the country. These policies are shaping economic conditions across industries—and the property and casualty insurance sector is no exception. For public entities, the effects are particularly acute. From rising claims costs and infrastructure inflation to tightening insurance markets, public-sector risk managers must now anticipate a prospectively shifting underwriting environment.

 

This paper explores the downstream effects of these tariffs, with forward-looking analysis of how public entity insurance programs may be impacted in 2025 and beyond. We also include insights from Dr. Robert Hartwig, Director of the Risk and Uncertainty Management Center, and provide data visualization of key risk drivers.

 

Introduction

Property and casualty insurers are closely linked to global supply chains. When tariffs drive up the price of construction materials, vehicle parts and labor, the cost to insure, repair or rebuild assets rises. For public entities—which manage fleets, public works, utilities and emergency infrastructure—this dynamic directly affects budget stability and insurance affordability.

 

Sector Overview: Key Tariff-Driven Risks

1. Escalating Claims Costs

Tariffs have raised the costs of many claim components:

• Auto Parts: With approximately 60% of replacement parts imported, the 25% vehicle tariff increases repair severity for both personal and commercial auto.
• Building Materials: Tariffs on steel, lumber and electrical components have increased total insured values (TIVs) and claim payouts.

 

"We’re already seeing elevated loss severity tied to imported components, especially in auto and commercial property lines,” said Dr. Robert Hartwig. “And if tariffs expand, this pressure will only grow.”

 

2. Evolving Pressure on Property Premiums: Outlook and Expectations

Insurers and public entities alike are watching 2025’s property market cautiously. While some public entities are currently experiencing rate relief, future pricing remains sensitive to both tariff policy and construction inflation.

 

“We’re in a fragile pricing environment,” Hartwig noted. “If input costs escalate—due to tariffs or supply chain volatility—we could see property rates swing upward, even in markets that have been softening.”

 

Forward-Looking Influences on Property Rates

• Entity Loss Experience: Public entity premiums will continue to be heavily influenced by each insured’s loss history and property schedule composition. Those with strong risk profiles may retain favorable rates regardless of broader market movement.
• Tariff-Driven Inflation Risks: Should tariffs on steel, lumber and foreign-made equipment persist or expand, insurers will likely factor that into 2025–2026 rate filings, particularly in property and inland marine lines.
• Reinsurance Cost Pass-Throughs: Increases in global reinsurance pricing—exacerbated by inflation—may begin to filter down to property rates for public entities starting mid-2025.
• Market Volatility and Underwriting Discipline: Carriers are expected to continue tightening terms, prioritizing profitability over market share, especially for public infrastructure-heavy schedules.

 

“While some entities are enjoying lower rates today, that window could narrow quickly,” Hartwig added. “All it takes is a sustained uptick in claims costs to force rate corrections.”

 

3. Implications for Public Entities

Capital Projects and Infrastructure

• Project delays and budget overruns expected if costs of materials rise again
• TIV updates may lag inflation, increasing risk of underinsurance

Vehicle Fleets

• Fleet repair costs rising; parts delays extend vehicle downtime
• Entities may defer replacements, increasing loss frequency

Workers’ Compensation & Liability

• Deferred maintenance and staffing shortages could lead to increased liability exposures and work-related claims

 

“Public agencies are under unique pressure,” said Hartwig. “They can’t simply cut services when costs rise—they have to stretch resources further, often while absorbing more risk.”

 

Strategic Considerations for Public Risk Managers

1. Review Property Schedules Annually: Ensure TIVs are current to avoid underinsurance.
2. Model Tariff-Inflation Scenarios: Incorporate construction and parts inflation into capital planning.
3. Diversify Markets When Possible: Consider layered or quota-share strategies to mitigate insurer pullback.
4. Prioritize Resilient Infrastructure: Invest in building resilience to reduce long-term claims costs.
5. Collaborate With Your Broker: Monitor rate trends, loss control opportunities and alternative risk transfer options.

 

Conclusion

The full impact of recent tariffs on public-sector insurance is still emerging. However, warning signs are clear: inflationary risk is real, and property and casualty carriers are adapting quickly. Public entity risk managers should take proactive steps now to maintain insurability, control loss trends and budget for a market that may become more volatile. Reach out to Alliant Public Entity today to better protect your organization against the impact of tariffs.

 

“We’re at the intersection of geopolitics and insurance economics,” concluded Dr. Hartwig. “Entities that treat this as a future risk—not just a current event—will be better prepared.”