We’re a few months down the line since Trump’s announcements, the shock has lessened, and the dust is settling giving us a clearer picture of just what impact US tariffs are having on the insurance industry globally.
The recent tariff policy introduced by US President Donald Trump stirred quite a storm in the global economy. These protectionist measures have not only rattled stock markets but have also sent shockwaves through various economic sectors, including the insurance industry. Let’s dive into how these tariffs are shaking things up in the insurance world. We’re a few months down the line since Trump’s announcements, the shock has lessened, and the dust is settling giving us a clearer picture of just what impact US tariffs are having on the insurance industry globally.
Economic Growth and Investments
The new US tariffs have put a dent in economic growth both in the US and Europe. The International Monetary Fund (IMF) has already revised growth forecasts downward. Higher import costs and increased inflation are reducing consumer purchasing power and hurting the competitiveness of companies. Export-oriented industries like automotive and mechanical engineering, which are crucial in countries like Germany and Austria and CEE, are certainly feeling the pinch. This could also negatively impact premium growth in the insurance industry.
Impact on Investment Results of Insurers
The imposition of tariffs by the United States has stirred up challenges for insurers’ investment portfolios too, creating a climate of uncertainty and volatility. Stock prices have experienced sharp declines as the immediate impact of tariffs on corporate profits has become apparent, coupled with growing economic unpredictability. This turbulence in financial markets has presented insurers with considerable difficulties in managing their equity investments, potentially cutting into their overall returns.
In contrast, the bond market has seen different dynamics emerge. High-quality government bonds, often regarded as safer investment options, have witnessed a surge in demand amidst the market turmoil. For insurers, this increase in bond prices could offer a measure of capital preservation, though the flip side is that yields tend to dip. Inflation, another consequence of heightened import costs due to tariffs, poses a separate challenge. The eroding effect of inflation on fixed-income investments, which form a significant part of insurers’ portfolios, necessitates adjustments to investment strategies to safeguard returns.
Uncertainty also brings with it heightened risks of credit defaults. Companies grappling with elevated costs and diminished competitiveness might find it harder to fulfil their debt obligations. This raises concerns over the credit quality of corporate bonds held by insurers, prompting a need for vigilant risk management. Beyond financial instruments, the broader economic impacts of tariffs have begun to dampen investment sentiment.
Impact on Insurance Clients
The impact of US tariffs on insurance clients is far-reaching and affects several areas, including property and casualty insurance, life insurance, and health insurance. One of the most noticeable effects will be the rise in repair costs for property and casualty claims. Tariffs on imported goods, such as car parts and building materials, will lead to higher expenses for repairs. Whether it’s fixing a damaged vehicle or rebuilding a home, the increased cost of parts and materials will translate into higher claims costs for insurers. Unfortunately, these additional costs often trickle down to clients in the form of increased premiums. Inflation further complicates matters, driving up the overall cost of claims and leaving insurers with little choice but to adjust their pricing models to reflect these changes.
Life insurance policies haven’t escaped the turbulence either, especially those tied to investment funds or financial indices. The market volatility caused by tariffs could lead to short-term uncertainties in the value of these policies, which is understandably unsettling for clients relying on them as part of their financial planning. However, there’s a silver lining: Experts anticipate that markets will stabilise in the long term, which could offer good opportunities for returns over time. Those making regular contributions to investment-linked life policies may even benefit from the cost-average effect, helping to smooth out the ups and downs of the market.
Health insurance is facing challenges of its own, particularly if tariffs on pharmaceuticals come into play. The increased cost of medications and medical supplies would inevitably lead to higher claims, and, much like property and casualty insurance, these costs could end up being passed on to clients through rising premiums. This adds another layer of complexity for insurers, who must navigate these mounting pressures while trying to maintain the confidence of their policyholders.
Just as the Dust Settled
The US tariff policy has complex and far-reaching impacts on both insurers and their clients, and we’re only at the start of feeling their impact but it doesn’t stop there. Just as the dust settled and we were starting to get to grips with the challenges and changes, the US has intensified its tariff strategy, particularly targeting automotive imports.
It is clear insurers must navigate market volatility, inflationary pressures, and credit risks to maintain stable investment results and that insurance clients could face higher premiums and potential fluctuations in policy values due to the economic effects of tariffs. Proactive management and strategic adjustments are essential for both insurers and clients to mitigate these impacts and ensure financial stability.
What’s Next?
As we look ahead, one can’t help but wonder what might happen next. Will the tariffs continue to shape global insurance markets, or will new policies emerge to counteract their effects? Only time will tell, but one thing is certain: the insurance industry must stay agile and prepared for whatever comes its way.
Paul Johannes Spittau
Head of Group Carrier Relations & Insurance Mediation
T +43 664 537 17 42
