Overview
Auto insurance premiums in the U.S. could rise 14% by the end of 2025 due to new tariffs on imported vehicles and parts.
The expected increase in claims costs—estimated between $26bn and $52bn—reflects rising repair prices, new car costs, and pressure on used car markets. Insurers are already responding with higher rates and cost controls, but face limits to further efficiency gains.
Additional tariffs on goods from China, Canada, and Mexico may push premium increases to 19%. As market leaders assess the impact, policyholders should expect continued volatility and limited room for rate relief in the near term.
Tariffs, Insurance Claims, and Market Impact
Tariffs imposed by the Trump administration could increase claims costs for P&C insurance by $10 bn to $36 bn, according to the APCIA. Personal auto insurance would likely face the most significant cost increases, potentially rising by $24bn.
Key Highlights
- Tariffs could add $26bn–$52bn to annual personal auto claims costs.
- Auto insurance premiums may rise 19% in 2025, combining tariff and inflation effects.
- A 25% tariff on vehicles and parts begins in April and May, hitting repair and replacement costs.
- From 2018 to 2023, physical damage claims rose 52.3%, while liability claim severity increased 51.6%.
- U.S. auto production relies heavily on Canada and Mexico, limiting the impact of national sourcing strategies.
60% of replacement parts used in U.S. repair shops come from Mexico, Canada, and China. Tariffs could disrupt the supply chain, increasing repair times and adding costs for storage fees and rental cars.
According to Goldman Sachs’ Global Insurance Survey, tariffs and trade disputes now rank fifth among the top 10 risks to investment portfolios. The recent GSAM survey highlights shifting macroeconomic concerns among insurance executives, emphasizing the impact of tariffs and trade disputes.
32% of surveyed insurance executives identified these issues as a significant macroeconomic risk, ranking 5th after inflation, recession, market volatility, and geopolitical tensions.
This marks a significant change, as tariffs did not feature on the list the previous year.
Tariffs Drive Up Insurance Claims and Premiums
U.S. auto insurance premiums could increase 14% on average by year-end due to new tariffs on imported vehicles and parts, according to US Auto Insurance Rates by States.
Insurers estimate the annual personal auto claims cost may grow by $26bn to $52bn. The 25% tariffs on imported passenger vehicles and light trucks take effect on April 3, and on key parts by May 3.
Economists expect these import levies to raise new car prices significantly, due to low profit margins and interconnected global supply chains.
- Used car values may also climb as demand shifts.
- The cost of repairs will increase.
- The insurance industry will feel pressure from multiple directions.
Insurance Information Institute Chief Economist Michel Leonard said single-digit tariffs aim to change supply chains, but double-digit tariffs aim to replace them.
Tariffs in the single digits aim to transform a supply chain but double-digit tariffs are destructive, intended to replace supply chains. The great majority of goods consist of components from different sources, like autos and homes.
Most goods include components from multiple countries. The concept of a product being “from” one country no longer applies in many sectors, including autos.
Certain countries affected by U.S. tariffs may decide
Certain countries affected by U.S. tariffs may decide, in addition to raising tariffs on their own, they will restrict exports to the U.S. of certain, say, rare earth minerals necessary for the production of lithium batteries in EVs, for instance.
I’ve estimated that in the personal auto space, we’re looking at somewhere around $11 bn in terms of claim cost impacts after some period of time, after which the tariffs have in fact been in effect.
Robert Hartwig, clinical associate professor at the University of South Carolina
“It’ll take a while for when we think about the existing stocks and inventories of parts and vehicles to be utilized and once those are exhausted, however I will see more of the impact associated with those tariffs,” Robert Hartwig noted.
“Personal auto somewhere in the vicinity of $11 bn we could add I would say somewhere in the vicinity of two to three billion dollars additional for commercial auto so we’re talking about $13-14 bn in the auto segments overall and the property segment is a bit more difficult to ascertain, but again we’re talking about a significant number of billions of dollars here, across both commercial property and residential property”.
Insurers Brace for Cost Pressure
Leonard said the effects of these tariffs differ from the pandemic. COVID-19 caused broad supply shocks. Tariffs hit specific links in the chain. Still, claims inflation remains a concern.
From 2018 to 2023, private passenger auto physical damage losses rose 52.3% to $95.38bn. Liability losses grew 30.7%. Property liability severity rose 51.6% in the same period, compared to 19.1% in the previous five years.
Insurers responded with aggressive rate hikes, underwriting changes, and cost cuts. AM Best Managing Director Greg Williams noted that by the end of 2024, private auto and homeowners had improved loss ratios due to this push for pricing discipline.
On a net basis, both the homeowners multiperil and private passenger auto businesses generated more favorable loss ratios through year end, reflecting the aggressive push for rate adequacy among primary personal lines insurers since early 2022.
Greg Williams, AM Best Managing Director
Despite stabilization in late 2024, companies expect smaller rate hikes in 2025. However, Leonard said carriers cannot offset the new cost pressure easily, according U.S. Auto Insurance Market Review. Most have already reached efficiency gains and scale advantages.
Political Action Adds More Strain
Since late January, President Donald Trump added new tariffs: 20% on imports from China, 25% on aluminum and steel, and a partial 25% on goods from Canada and Mexico. All three are key trading partners.
3% rise in premiums from North American tariffs, 4% from steel and aluminum tariffs, and 7% from the newest round. Combined with existing inflation and other loss factors, auto insurance premiums could rise 19% overall in 2025.
Progressive CEO Tricia Griffith said they may reflect tariff-related costs in rate filings by mid-year, depending on how the data develops. Typically, tariffs are a one-sided risk to our loss costs.
Liberty Mutual CEO Tim Sweeney called tariffs inflationary. He estimated a 3–4% premium impact in a worst-case scenario but said current margins could absorb it, though not comfortably.
Tariffs will have many impacts
Tariffs will have many impacts, particularly in the property casualty insurance industry. That will be focused in the auto lines and in the property lines. Not so much of a direct effect in the casualty lines, generally speaking.
It’s pretty easy to see that in, for instance, in the case of personal auto and commercial auto, there will be substantial impacts. The reason for that is, is that the administration is promising to implement in early March.
Robert Hartwig, clinical associate professor at the University of South Carolina
Tariffs of 25% against Mexico and Canada has already implemented 10% tariffs against China, and very recently has actually implemented a special fee against Chinese container vessels entering American ports, which is effectively another tariff and another tax. A very high proportion, of course, of automobiles driven on American roads come from other countries.
The supply chains of the U.S. automobile manufacturing system is very intertwined between the U.S., Mexico, and Canada. That’s by intent.
“There have been numerous trade agreements between the three countries to try to maximize content between those three countries. As a result, there’s simply almost no such thing,” Robert Hartwig says.
There is literally no such thing as a car that is made entirely of American parts these days. The same could be said for commercial vehicles, whether we are talking about delivery vehicles, fleet vehicles, or we’re talking about 18 wheeler trucks or no matter what.
“The same can also be said quite frankly for farm equipment and construction equipment. We’re talking about anything with wheels and an engine and whether that’s an electric engine or a traditional engine, a gas engine or diesel engine is going to have significant components now that are imported”.
Systemic Disruption and Market Outlook
Trade agreements between the U.S., Canada, and Mexico have created a deeply linked auto production system.
There is literally no such thing as a car made entirely of American parts. This applies across personal and commercial vehicles.
Robert Hartwig of the University of South Carolina
The American Property Casualty Insurance Association noted that while many insurance lines could face pressure from the tariffs, personal auto will bear the largest burden. This line accounts for about one-third of U.S. insurance premiums.
Insurers are watching the situation closely, referencing the pandemic, when replacement costs surged two to three times faster than general inflation. Triple-I warned that if broader macroeconomic and geopolitical factors intensify, the damage to insurers could expand.
Personal Auto Insurance Rates
Personal auto insurance underwriting profitability appears to finally be headed in a positive direction after recent years of record underwriting losses. But while these gains show improvement, it will likely take time for them to be reflected in flattening auto insurance premium rate, according to the Insurance Information Institute Report.
Auto insurers’ 2024 net combined ratio of 104.9 is 7.3 points better than 2023. 2024 net written premium growth of 14.3% is the highest in over 15 years and six points higher than the next-highest during that period, reflecting rate increases to offset inflationary loss costs.
The top 5 U.S. private auto insurers by market share were State Farm (18.26%), Progressive (15.20%), Berkshire Hathaway (12.26%), Allstate (10.35%), and USAA (6.24%). These carriers will be key players in absorbing and responding to the tariff shock.
Auto insurers’ net combined ratio in 2025 improved to 104.9, a 7.3-point increase from 2022. The net written premium growth in 2024 reached 14.3%, the highest in over 15 years and 6 points higher than the previous record, due to rate increases to counter inflation-related loss costs.
These improvements follow 2022, which had the worst results in recent years. In 2020, the industry issued $14 mn in rebates and discounts to policyholders, anticipating lower losses due to reduced driving during the COVID-19 pandemic lockdown.
FAQ
Auto insurance premiums could rise by up to 19% this year. Insurify initially projected a 5% increase based on inflation and elevated loss ratios. New tariffs have pushed that estimate higher. A 14% increase now comes from rising claims costs due to the added expense of vehicles, parts, and repairs affected by the tariffs.
The 25% tariffs on imported passenger vehicles and light trucks are set to begin on April 3, 2025. Tariffs on key automotive parts will follow on May 3, 2025. These tariffs are part of a broader trade policy shift that includes additional levies on materials like steel and aluminum, as well as on imports from China, Canada, and Mexico.
The U.S. has imposed new tariffs on goods from China (20%), as well as 25% tariffs on aluminum and steel. Partial 25% tariffs also apply to imports from Canada and Mexico—America’s top vehicle trade partners. Since U.S. car production relies on supply chains shared with these countries, the tariffs disrupt a system built on cross-border manufacturing, raising prices and reducing efficiency.
Tariffs raise the cost of imported vehicles and parts. This leads to more expensive repairs and higher vehicle replacement values. As a result, the cost per claim increases for insurers, who then adjust premiums to maintain pricing adequacy. Demand for used vehicles may also rise, pushing up valuations and related claims.
Insurers have already implemented cost-saving measures since 2022, including workforce optimization, automation, and underwriting discipline. According to Michel Leonard, carriers operate efficiently and have little room to cut further. Most of the cost pressure from tariffs will likely pass through to policyholders via premium increases.
During the pandemic, supply chain issues and shifts in driving patterns sharply increased auto insurance claims costs. The current tariff situation is more targeted but still significant. For reference, replacement costs during COVID-19 rose two to three times faster than general inflation. Industry leaders expect another large-scale disruption as tariffs take hold.
The five largest private auto insurers by market share were State Farm (18.26%), Progressive (15.20%), Berkshire Hathaway (12.26%), Allstate (10.35%), and USAA (6.24%). These companies write the bulk of private auto policies in the U.S. and will absorb much of the impact. Executives from Progressive and Liberty Mutual have already indicated they are preparing to reflect tariff-related losses in rate filings later this year.
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by Renée Kiriluk-Hill – BestWire senior associate editor.
Quotes: Greg Williams – AM Best Managing Director, Robert Hartwig, associate professor at the University of South Carolina
