Tariffs and Insurance Prices: What Small Business Owners Need to Know

With recent tariffs taking center stage in global trade discussions, small business owners are facing yet another challenge. While tariffs primarily focus on goods like cars, auto parts, and building materials, their ripple effects are far-reaching and may increase insurance premiums across the board.

For small businesses, rising insurance costs could strain operational budgets, making it crucial to understand what’s driving these increases and how to mitigate their impact. This post dives into how tariffs are affecting insurance prices and what small business owners can do to stay ahead.

How Tariffs Drive Insurance Costs Higher

Tariffs are taxes imposed on imported goods, and their impact doesn’t end at the border. They disrupt pricing throughout entire supply chains. When the cost of goods like auto parts or construction materials goes up due to tariffs, the cost to replace or repair insured items also rises. Here’s a breakdown of how this process drives up insurance rates across key areas.

Auto Insurance Impact

According to reporting from USA Today, tariffs on imported cars and auto parts could raise the average cost of full-coverage car insurance in the U.S. by up to 8%. This significant jump stems from higher costs for replacement parts and repairs.

• Roughly 32% of auto parts in the U.S. are imported from Canada and Mexico. These tariffs tacked onto foreign parts lead to increased repair costs after accidents.
• The Insurance Business highlights that costs for repairing or replacing cars after a claim will undoubtedly rise, making auto insurers adjust their premiums to offset the risk.

For small businesses operating vehicle fleets, this is a double hit—not only are repair costs increasing, but fleet insurance premiums are likely to rise by renewal time.

Home and Commercial Property Insurance Impact

Tariffs also impact property and casualty (P&C) insurance lines, such as home and commercial property coverage. Materials like aluminum, steel, and wood, which are essential for repairing damaged buildings, have become more expensive.

• Higher materials costs result in higher claim payouts for insurers when rebuilding or repairing homes or commercial spaces.
• Mark Friedlander from the Insurance Information Institute explains, “Premiums for home insurance and business insurance could also see an uptick in addition to rising auto insurance premiums.”

Small businesses may especially feel the crunch if they hold property insurance on offices, warehouses, or storefronts.

Disruption Across the Supply Chain

Beyond materials and parts, tariffs are causing widespread disruptions in global supply chains. The Insurance Business notes that regulatory ambiguity surrounding the application of tariffs is creating uncertainty. This could result in added costs for both insurers and policyholders.

Elizabeth Wooliston of the Lloyd’s Market Association warns businesses to work closely with their insurance brokers to avoid underinsurance as claims costs climb. Having policies that don’t fully cover new, higher replacement costs could leave small business owners vulnerable when disaster strikes.

What Higher Insurance Costs Mean for Small Businesses

For small businesses already facing rising expenses in other areas (like higher wages, fuel costs, and utilities), increased insurance premiums add another layer of financial strain. It’s crucial to recognize how these changes may impact operational budgets and explore strategies to manage the effects.

When to Expect Premium Hikes

The good news is that insurance premium increases linked to tariffs are not immediate. According to USA Today, most insurers need regulatory approval to increase premiums, which takes time. Policyholders likely won’t see tariff-related adjustments until their next renewal. However, it’s important to start preparing now for potential increases in coverage costs.

Key Industries Most Affected by Tariffs on Insurance

Not every industry will face the same level of impact from higher premiums. Certain sectors may shoulder more of the burden due to their reliance on expensive goods and materials affected by tariffs.

• Construction and Real Estate: Higher building material costs will push up insurance premiums for construction companies and property owners.
• Auto Repair Shops: Businesses dependent on foreign auto parts will see costs pass down to their policies.
• Retailers and Distributors: Expensive supply chains could inflate costs tied to property and cargo insurance.

Strategies to Manage Rising Premiums

Small businesses don’t have to passively absorb the shock of higher insurance rates. Here are some practical steps to safeguard coverage without overspending.

1. Review Your Policies

Small business owners should review existing policies with their brokers to ensure adequate coverage without underinsurance or unnecessary extras. A policy audit can help identify redundant add-ons or areas that need adjustment based on new risks and costs.

2. Improve Risk Management Practices

By implementing robust risk management practices, businesses can reduce claims and keep premiums in check. For example, consider installing security systems, improving safety protocols, and performing regular maintenance on properties and equipment.

3. Shop Around

If your insurer raises premiums significantly, it’s worth shopping around for quotes from other companies. Independent insurance brokers can help compare options, potentially discovering cost-saving opportunities.

4. Focus on Building Resilience

If supply shocks due to tariffs are challenging your business, it’s time to think creatively. Building resilience into your supply chain can help mitigate risks. Diversify suppliers, explore local sourcing options, and negotiate favorable terms with existing partners.

5. Plan Your Budget

With increases in premiums likely, planning ahead is critical. Work higher insurance costs into your business’s financial model and identify areas where you can cut back to offset the impact.

6. Partner with Knowledgeable Brokers

Strong relationships with experienced insurance brokers can make all the difference when navigating a challenging insurance landscape. They can help small business owners find the best balance between cost and coverage while offering advice tailored to specific industries.

7. Flexible Financing Options for Small Businesses

The Bankroll Revolving Line of Credit with the Principal Pause Button option from ARF Financial is an innovative solution for small business owners navigating uncertain times. This financing option provides businesses with the flexibility to access funds as needed while maintaining control over their cash flow. The Principal Pause Button allows you to temporarily pause principal payments, giving you added financial relief when you need it most.

For more details about these features, visit Revolving Line of Credit and Principal Pause.

How Small Businesses Can Stay Ahead

While tariffs are beyond your control, your preparation isn’t. By understanding how these policies affect insurance premiums and proactively managing your coverage, your business can adapt and remain financially resilient.

Navigating this environment requires both awareness and strategy. If you’re unsure how these tariffs will directly impact your insurance costs, reach out to your broker or insurer for detailed advice.