General Insurance Article - Tariffs could have wide ranging implications for insurers

 “The impact of the tariffs announced by the US administration in the last 36 hours could have wide-ranging implications for insurers, as uncertainty and volatility increase risk in many areas of business. Issues will differ depending on the jurisdiction, and in the longer run whether there is an economic downturn resulting in reduced levels of economic activity and international trade which manifests in reduced demand for insurance.

 Specifically:

 There is no doubt we are living in unpredictable times and even looking at a 12-month insurance contract could feel as if we are trying to predict a long way ahead. In the US, as the end-price of goods are likely to rise, the most obvious and immediate concern for insurers will be managing their ‘value at risk’, with brokers paying close attention to avoid underinsurance for their customers.

 At its most basic level, if tariffs make goods and spare parts more expensive, insurance claims will in all likelihood rise. This could mean that premiums may have to increase or cover may be decreased, otherwise insurers could face a significant potential margin squeeze. The imposition of tariffs could also create ambiguity regarding their application (e.g. defining engineering parts - while primarily intended for the automotive sector, tariffs could also affect sectors such as renewables). This could result in increased supply chain disruption.

 Insurers do not rely solely on underwriting for profitability; they are also able to invest a portion of their capital in a range of financial instruments. Economic uncertainty leads to volatility in values of stocks and bonds which may impact overall profitability.”