Tariffs Loom: Auto Insurance Costs Set to Surge
American consumers face a potential spike in auto insurance premiums, adding another financial burden to their already strained budgets. The looming threat of tariffs, particularly those targeting imports from Canada and Mexico, is poised to ripple through the automotive industry, impacting the cost of car parts and, consequently, driving up insurance rates.
A recent analysis by Insurify paints a concerning picture: the national average cost of full-coverage car insurance could jump by as much as 8% by the end of the year if proposed tariffs on imports from Canada and Mexico take effect. This translates to an increase of nearly $200 annually, with the average premium potentially climbing from $2,313 to $2,502. The situation could be even more dire considering the analysis predates President Donald Trump’s imposition of tariffs on aluminum and steel, which will invariably contribute to further cost escalations.
The impetus for these projected increases lies in the intricate web of international trade and its impact on the cost of car repairs. Matt Brannon, the Insurify data journalist responsible for the analysis, emphasizes that many consumers may not immediately connect tariffs with their insurance premiums. However, the reality is that tariffs inflate the price of car parts, a crucial factor in determining insurance rates.
The United States relies heavily on its northern and southern neighbors for automotive supplies. Insurify reports that one-fifth of the cars and light trucks sold in the U.S. originate from Canada and Mexico. Moreover, the U.S. imports approximately 32% of its total auto parts from these two countries. When tariffs are imposed on these imports, the cost of these parts rises, making repairs more expensive.
The American Property Casualty Insurance Association (APCIA) corroborates this concern. Data released by the association in February reveals that roughly 6 out of every 10 auto replacement parts used in U.S. auto shop repairs are imported from Mexico, Canada, and China. Any increase in the cost of these parts inevitably translates to higher expenses for car owners whenever they need repairs.
Beyond replacement parts, tariffs will also impact the prices of new vehicles. Wolfe Research estimates that the tariffs would likely increase the cost of new cars by around $3,000. Given that the average new car already costs $48,641, this increase would push the price to $51,641, a significant financial hurdle for many prospective car buyers.
The rise in the price of new vehicles further contributes to higher auto insurance rates. Brannon explains that insurance rates are determined based on both the cost of replacing a vehicle after an accident and the overall value of the car. As new car prices increase, insurance companies are likely to adjust their rates accordingly.
Even if insurers attempt to circumvent the tariffs by sourcing parts made in the U.S., the benefits may be limited. Brannon points out that domestic suppliers may capitalize on the situation by raising their prices, knowing that insurers have fewer affordable alternatives.
The impact of these potential auto insurance increases will not be uniform across the country. Insurify’s analysis indicates that New York is projected to experience the highest increase in insurance rates, with annual coverage potentially increasing by $489 by the end of the year. Of this amount, $110 would be directly attributed to tariffs.
While New York is expected to bear the brunt of the increases, tariffs are projected to lead to higher auto insurance rates in every state. Without tariffs, Insurify anticipates that car insurance rates would either decrease or remain flat in five states: Vermont, New Hampshire, Hawaii, New Mexico, and Idaho.
Consumers may not experience the impact of these tariff-induced rate increases immediately. Brannon explains that most insurers need to obtain approval from state regulators before raising premiums, a process that can take time. As a result, the price increases are more likely to manifest when drivers renew their policies or switch to a new insurer, rather than during an existing coverage period.
The potential for higher auto insurance rates serves as a stark reminder of the ripple effect that tariffs can have on the broader economy and on the everyday lives of American consumers. The complexity of global supply chains means that even seemingly isolated trade policies can have far-reaching consequences, impacting everything from the cost of car repairs to the prices of new vehicles and the premiums consumers pay for auto insurance.
The postponement of tariffs offers temporary reprieve. However, the possibility remains that these tariffs could be implemented at a later date, sending the auto insurance market, and consumers’ wallets, on a turbulent ride.
