Tariffs and trade wars: How they will affect your home and auto insurance rates

U.S. President Donald J. Trump continues to target countries such as Canada with tariffs, with a new announcement seemingly coming every week.

Tariffs stand to affect a wide swath of the economy, including insurance, which is heavily sensitive to the price of goods such as car parts and home construction materials (more on that later). 

The U.S. administration says it’s doing this to halt the influx of illegal immigrants and crack down on lethal drugs such as fentanyl entering the United States. It has so far threatened to implement a 25% tariff on imports from both Canada and Mexico and a 10% additional tariff on Chinese imports.

How will tariffs affect the auto sector?

The tariffs imposed on Canada and Mexico have raised concerns about major disruptions in car manufacturing. Automotive components often cross the borders between the U.S., Mexico, and Canada multiple times before a vehicle is fully assembled. As a result, import taxes could drive up the average price of a U.S. car by $3,000, according to Wolfe Research. 

The U.S. is the world's leading importer of steel, with Canada, Brazil, and Mexico as its top three suppliers. Steel and aluminum tariffs are particularly significant for Canada, as Hamilton, Ont., is the country’s largest steel-producing city. Its two major plants, ArcelorMittal Dofasco and Stelco, collectively employ nearly 6,000 workers. Last year alone, Canada provided more than 50% of the aluminum imported into the U.S.

How tariffs impact car insurance rates in Canada

As a major exporter of aluminum and steel to the U.S., Canada’s industries and economy will feel the impact of the new tariffs. While some tariffs primarily target the metal industry, their effects will extend beyond manufacturing, influencing other sectors, such as insurance. 

Higher material costs will lead to increased expenses for vehicle repairs, parts, and replacements, which could result in higher premiums for policyholders. Here’s how tariffs can influence insurance premiums:

Higher Vehicle Repair Costs: Many auto parts used in Canada are imported, particularly from the U.S. and overseas. If tariffs are imposed on these parts, the cost of repairs increases, leading insurance companies to adjust premiums accordingly.

Increased Vehicle Prices: Tariffs on raw materials like steel and aluminum raise manufacturing costs, making vehicles more expensive. Higher vehicle values mean higher replacement costs, which drive up insurance rates.

Rising Claims Costs: As repair and replacement costs increase, insurers must pay out higher claims when accidents occur. This additional expense often gets passed down to policyholders in the form of higher premiums.

Supply Chain Disruptions: Trade restrictions and tariffs can slow down the supply of essential auto parts, delaying repairs. This can increase costs for insurers, for example, if policyholders need rental cars for longer periods, ultimately raising rates.

The insurance industry depends on stable, predictable supply chains to assess risk accurately and ensure timely claim settlements.

Inflationary Pressure: Tariffs contribute to overall inflation, which affects various industries, including insurance. As the cost of goods and services rises, insurers adjust premiums to maintain profitability.

How tariffs impact home insurance rates in Canada

Tariffs don’t just affect auto insurance—home insurance rates in Canada can also rise due to increased costs in construction, repairs, and supply chain disruptions. Here’s how:

Higher Cost of Building Materials: Many materials used in home construction and repairs, such as lumber, steel, aluminum, and appliances, are imported. If tariffs increase the cost of these materials, rebuilding or repairing homes becomes more expensive, driving up insurance premiums.

Increased Home Replacement Costs: Insurance companies determine coverage based on the replacement cost of a home. If tariffs make construction materials more expensive, insurers must adjust policies and premiums to reflect these higher costs.

Rising Labour & Contractor Costs: When building materials become more expensive, contractors charge higher fees to cover their costs. This impacts home repair claims, leading insurers to raise rates to balance payouts.

Supply Chain Delays & Higher Claims Costs: Tariffs can disrupt the supply chain, making it harder to get materials quickly. If home repairs take longer, temporary housing costs increase, adding to insurers' expenses and leading to premium hikes.

Inflation & Economic Pressures: Tariffs contribute to overall inflation, affecting industries across the board (as mentioned with the auto industry earlier), both of which rely heavily on steel products. As construction, labour, and materials become more expensive, insurance companies adjust premiums to stay profitable.

Impact on insurance carriers in Canada

Insurance providers anticipate that Ontario home and auto insurance rates are expected to rise due to U.S. tariffs on Canadian products. With the recent 25% tariff on steel, industries that heavily rely on steel—such as automotive manufacturing and construction—will be among the first to feel the impact.

"If tariffs continue and they impact vehicle supply chains, the cost of vehicles overall is going to go up," says Lance Miller, CEO of Surex. "If that happens, it's going to cost more to fix and replace vehicles when they're in an accident. That's going to make insurance more expensive."

As production costs increase, a domino effect will follow. Higher manufacturing expenses will lead to increased sales costs, which will, in turn, drive up claims costs for repairs and replacements. As a result, insurers will be forced to raise premiums over time to offset these rising costs.

Some Canadian insurance companies are already trying to get ahead of this. For instance, Intact Insurance recently said it is confident in its ability to manage the impact of tariffs, thanks to proactive efforts in strengthening its local supply chain. The company has been actively optimizing operations by working closely with suppliers and intermediaries to maximize Canadian content.

What can you do to keep your rates lower?

With potential premium increases ahead, policyholders should reassess coverage needs and deductibles. Consult your dedicated insurance advisor for guidance on managing premiums and optimizing your policy coverage. 

If rates increase, work with a broker to compare providers to find the best deal while ensuring sufficient coverage. You can further save on premiums by bundling policies, maintaining a clean claims history, and maintaining a safe driving record.