Insurance Daily News

Midterms Could Keep Tariff Risks Alive for Insurers

The upcoming U.S. midterm elections are poised to influence the insurance sector’s exposure to trade‑related risks. Economists warn that a weaker Republican presence in Congress could leave President Donald Trump with greater freedom to pursue trade and foreign‑policy measures, potentially reviving tariff pressures that affect claim costs and the financial health of commercial clients.

Marcos Carias, North America economist at trade‑credit insurer Coface, expects Democrats to regain control of the House while the Senate outcome remains uncertain. He notes that a divided Congress would make it harder for the administration to pass domestic legislation, but that legislative gridlock does not necessarily limit the president’s ability to act on trade issues.

Carias points to the Section 301 investigation launched by the U.S. Trade Representative in March as a likely avenue for further action. The probe targets excess manufacturing capacity in major trading partners, including China, the European Union and Mexico, and focuses on sectors such as vehicles, machinery and construction materials, all of which have direct insurance implications.

Research presented by Aon at the Casualty Actuarial Society’s 2026 Spring Meeting modeled the loss‑cost impact of post‑tariff inflation. The study estimated a 5.7% increase for auto physical‑damage losses and a 4% rise for residential and commercial‑property construction costs, compared with a 2.8% baseline, highlighting the sensitivity of insurance pricing to tariff‑driven price changes.

The auto‑insurance impact is driven primarily by higher vehicle replacement costs, while property insurers face the risk that inflated construction expenses could erode the adequacy of insured values. The magnitude of these effects depends on whether businesses absorb the higher input costs or pass them on to customers, a factor that directly influences insurers’ pricing and reserving calculations.

Marsh’s tariff guidance warns that existing policy limits may become insufficient under the new cost environment, and that percentage‑based deductibles could leave policyholders bearing larger out‑of‑pocket amounts. Insurers may need to revisit limit structures and deductible formulas to maintain coverage relevance and avoid unexpected gaps.

Supply‑chain constraints add another layer of complexity. Shortages of equipment or parts can extend repair times and trigger business‑interruption losses. Brokers are advised to obtain up‑to‑date replacement cost estimates and realistic recovery timelines, especially for domestically sourced goods that incorporate imported components, to accurately assess exposure.

Trade‑credit insurers are also exposed through the financial health of their policyholders’ customers. Allianz Trade’s October outlook projects U.S. business insolvencies to rise 12% in 2026 and a further 4% in 2027, with global increases of 5% and 1% respectively. While these forecasts reflect broader economic pressures, higher tariff costs could exacerbate solvency challenges for vulnerable firms.

The U.S.–Canada tariff dispute illustrates how quickly policy assumptions can shift. After negotiations collapsed in August, Trump threatened to raise tariffs on Canadian vehicles and automotive parts to 50% starting January 1, 2027, on top of existing duties of up to 50% on steel and 25% on autos. Sources suggest a possible deal before the November 3 midterms, but the threat remains a source of uncertainty for insurers monitoring cross‑border exposure.

Overall, the midterm election outcome could leave tariff risk largely unchanged for insurers, with legislative gridlock potentially shifting the focus to executive trade actions. Stakeholders should watch for developments in Section 301 investigations, any adjustments to implementation dates or exemptions, and the resolution of the U.S.–Canada tariff talks, as these factors will shape loss‑cost trends and underwriting strategies in the coming years.

Why it matters

The election results will determine whether tariff‑related insurance risks stay high, affecting pricing, coverage adequacy and insurer solvency.

FAQ

What inflation rates did Aon model for insurance loss costs after tariffs?
Aon modeled a 5.7% increase for auto physical‑damage losses and a 4% rise for residential and commercial‑property construction costs, against a 2.8% baseline.

How might the Section 301 investigation affect insurers?
The investigation targets excess capacity in sectors like vehicles, machinery and construction materials, which could raise replacement costs and affect insurers’ pricing and limit adequacy.

What are Allianz Trade’s forecasts for U.S. business insolvencies?
Allianz Trade expects U.S. business insolvencies to increase 12% in 2026 and another 4% in 2027.

What tariff threat exists between the U.S. and Canada?
Trump threatened to raise tariffs on Canadian vehicles and automotive parts to 50% from January 1, 2027, adding to existing duties of up to 50% on steel and 25% on autos.

Source: Insurance Business America. See the original source for full details.