Tariffs and Insurance Premiums: A Disconnect

Global Economy Braces for Slowdown as US Tariffs Bite, Insurance Sector Faces Headwinds

The global economic outlook is dimming, with experts predicting a tangible slowdown in growth thru 2025. A new report from the Swiss re institute’s World Insurance Sigma highlights that escalating American customs duties are a meaningful factor, casting a shadow over international economic expansion. The insurance industry, a barometer of economic health, is poised to feel the impact, with premium growth expected to decelerate considerably.

The institute forecasts a dip in global economic growth from 2.8% in 2024 to 2.3% in 2025. This moderation directly affects the insurance sector. After an anticipated 5.2% increase in total premium volumes for 2024, growth is projected to shrink to a more modest 2% for the current year, before recovering slightly to 2.3% in 2026.Political instability and intensifying competition are compounding these challenges for life and non-life insurers. in Europe, a climate of political uncertainty is expected to dampen economic activity, leading to stagnant growth of 0.8% for the year.

across the Atlantic, the United States, a key driver of global growth, is also anticipated to experience a slowdown. The American GDP growth rate is projected to fall to 1.5% this year,a stark contrast to the previously expected 2.8%.

While the report suggests that the direct impact of US tariffs on automotive physical damage insurance in the United States might be limited, opportunities for subscription growth could still emerge in specific niches. The institute emphasizes that an increased awareness of risks can generally benefit insurers, but only if the resulting economic shock is not overly severe.

How might the increased complexity of supply chains, driven by tariff avoidance, specifically impact cargo insurance claims processing?

The Rising Cost of Global Trade & It’s Hidden impact

Tariffs, as highlighted in recent analyses (BCG, 2025), are reshaping global supply chains and impacting business costs. But beyond the promptly visible price increases on imported goods, there’s a less discussed consequence: a disconnect between tariff increases and corresponding adjustments in insurance premiums. While businesses brace for higher costs due to import tariffs, trade barriers, and customs duties, the insurance industry often lags in fully reflecting these increased risks in their pricing models. This creates a potential gap in risk coverage and financial exposure for importers and exporters.

How Tariffs Increase Insurable Risk

Tariffs don’t just add a percentage to the cost of goods; they fundamentally alter the risk landscape for international trade.Here’s how:

Supply Chain Disruption: Tariffs incentivize companies to diversify their supply chains, often leading to longer, more complex routes. Longer transit times and more handling points inherently increase the risk of loss or damage, impacting cargo insurance needs.

Increased Storage Costs: Goods held at ports awaiting tariff resolution or clearance require extended storage, raising the risk of theft, fire, or other perils.This necessitates higher warehousing insurance coverage.

Political Risk: trade wars and tariff disputes introduce political risk insurance considerations.Sudden policy changes can led to contract cancellations, expropriation, or currency inconvertibility.

Counterfeit Goods & Smuggling: Higher tariffs can fuel the market for counterfeit goods and smuggling, increasing the risk of cargo being intercepted or seized, requiring specialized confiscation insurance.

Demand Fluctuations: Tariffs can impact consumer demand, leading to inventory build-ups or shortages. This affects business interruption insurance needs.

Why Insurance Premiums Haven’t Fully Adjusted

Several factors contribute to the lag in insurance premium adjustments:

historical Data Reliance: Insurance companies heavily rely on historical loss data to calculate premiums. The recent surge in tariff-related disruptions is a relatively new phenomenon, meaning sufficient data for accurate risk assessment is still developing.

Complex Causation: Establishing a direct causal link between a tariff and a specific loss can be challenging. Insurers may hesitate to increase premiums without clear evidence of tariff-driven claims.

Competitive Market: The insurance market is highly competitive. insurers may be reluctant to raise premiums considerably, fearing loss of market share.

Underestimation of Long-Term Impact: Some insurers may underestimate the long-term impact of tariffs on supply chain vulnerabilities and overall trade risk.

Slow Regulatory Response: Insurance regulations may not always keep pace with rapidly changing trade policies, hindering premium adjustments.

Specific Insurance Types Affected & Expected Adjustments

Here’s a breakdown of insurance types likely to see premium increases and why:

| Insurance Type | Impact of Tariffs | Expected Premium Adjustment |

|—|—|—|

| Marine Cargo insurance | Increased transit times, rerouting, higher risk of damage/loss | Moderate to Meaningful Increase (5-20%) |

| Political Risk Insurance | Increased risk of expropriation, contract frustration, currency inconvertibility | significant Increase (10-30%+) |

| business Interruption Insurance | Supply chain disruptions, inventory imbalances | Moderate Increase (3-10%) |

| Warehousing Insurance | extended storage times, increased risk of theft/damage | Moderate Increase (2-8%) |

| Product Recall Insurance | Increased risk of counterfeit goods entering the supply chain | Moderate Increase (3-7%) |

Real-World Example: US-China Trade Tensions (2018-2020)

During the US-China trade war (2018-2020), many importers experienced significant delays and increased costs due to tariffs. While cargo insurance claims rose,premium adjustments were initially slow to materialize. It wasn’t until 2020, with a clearer understanding of the sustained disruption, that insurers began to significantly increase premiums for shipments between the US and China, particularly for goods subject to high tariffs. This demonstrates the time lag between tariff implementation and insurance market response.

Benefits of Proactive Risk Management

don’t wait for insurers to catch up.Proactive risk management can mitigate the financial impact of tariffs and insurance gaps:

Supply Chain Mapping: Understand your entire supply chain to identify vulnerabilities.

Diversification: Explore alternative sourcing options to reduce reliance on tariff-affected countries.

contract Review: Ensure contracts include clauses addressing tariff changes and force majeure events.

Increased Coverage Limits: Consider increasing insurance coverage limits to adequately protect against potential losses.

Regular Insurance Reviews: Work with your insurance broker to regularly review your coverage and ensure it reflects the current trade environment.

Practical Tips for Importers & Exporters

transparency with Insurers: Be upfront with your insurer about your exposure to tariffs and potential supply chain disruptions.

Detailed Cargo Declarations: Provide accurate and detailed cargo declarations to ensure proper risk assessment.

Negotiate with Insurers: Don’t hesitate to negotiate premiums and coverage terms with your insurer.

* Explore Specialized Insurance: Consider specialized