According to a fresh analysis by Insurify, the tariff policies introduced by the Trump administration might cause a spike in auto insurance premiums. This comes amidst the backdrop of pandemic-driven inflation, which has already seen drivers grappling with rapidly escalating costs.
Insurify predicts that a proposed 25% tariff on imports from Canada and Mexico could kick in as early as March, causing annual full-coverage car insurance premiums to surge by 8%, averaging $2,502 by the close of 2025. Even without these tariffs, premiums are projected to climb by 5% by the year’s end, reaching $2,435.
These tariffs are likely to result in higher prices for cars and auto parts imported from Canada and Mexico, which are key suppliers to the U.S. market. Such cost hikes would mean insurers face increased payouts on claims when policyholders are involved in accidents, leading them to shift that financial burden to consumers through heightened premiums.
In the realm of Personal Finance, tariffs have played a significant historical role in the U.S., teaching key lessons about trade wars and serving as hedges against inflation. “People usually associate tariffs with goods sourced elsewhere,” remarked Matt Brannon, a data journalist at Insurify and the analysis’ author. “Services like car insurance, however, can slip under the radar when we think about tariffs.”
Brannon described the tariff impact projections as “conservative.”
The Trump administration has outlined numerous tariff proposals since its early tenure. On February 4, Trump levied an additional 10% tariff on Chinese imports. While tariffs on Canada and Mexico were scheduled for the same date, they were postponed by a month.
According to the American Property Casualty Insurance Association, around 60% of the auto replacement parts used in U.S. repairs are sourced from Mexico, Canada, and China. Notably, some car parts cross international borders several times for assembly before they are marketed.
Additionally, Trump signed off on a comprehensive retaliatory tariff strategy targeting global trade partners, following a review that is to conclude by early April. This includes increasing aluminum and steel duties from 10% to 25% and imposing 25% tariffs on automobiles, pharmaceuticals, and semiconductors.
Economists argue that not all proposed tariffs might come to fruition. They suggest that Trump could be employing these tariffs as leverage in trade negotiations. Bank of America Securities economists, in a recent note, mentioned that while this tactic might be employed for negotiation, it doesn’t entirely rule out the imposition of certain tariffs. Currently, they do not foresee tariffs on Canada or Mexico being implemented.
However, if these tariffs were to materialize, they would likely amplify the already soaring prices of cars, parts, and insurance premiums, according to experts.
Cox Automotive recently pointed out, “The threats of 25% tariffs at the North American borders—initially proposed, now delayed—could disrupt over three decades of free trade throughout North America, unsettling all facets of the auto industry. The suggested ‘reciprocal’ tariffs would add further cost pressures to an automobile sector already struggling with affordability concerns.”
Motor vehicle insurance premiums have risen by 12% over the past year, as indicated by the consumer price index. The spike in insurance costs began accelerating in 2022 and 2023, largely driven by Americans returning to workplace commuting routines, reducing remote work.
“With more people hitting the road simultaneously, the number of accidents increased,” Brannon commented.
