Insurance Implications of US Trade Policies: Navigating a New Risk Landscape

As the United States intensifies its trade policies, raising tariffs on significant imports, the financial environment for businesses engaged in international trade is undergoing substantial shifts. These changes are significantly influencing the demand for trade credit insurance, reshaping risk assessments for insurance providers. The repercussions are widespread, sparking analysis from industry experts, including AM Best, regarding how insurers may navigate the escalating economic and claims challenges now posed by heightened trade tensions. With US tariffs on specific Chinese imports reaching an unprecedented 145%, organizations involved in global trade are grappling with narrower profit margins, deferred payments, and an elevated risk of nonpayment. This environment has prompted companies to increasingly seek the safety net of trade credit insurance. Hub International, a leading global insurance brokerage, highlights this trend as creditors begin tightening access to credit and demand coverage for international receivables as a condition. This escalation in demand, however, could lead to difficulties in maintaining insurance capacity, potentially posing a challenge for carriers. The weakening of buyer creditworthiness, coupled with a surge in policy requests, could strain insurers' ability to accommodate the influx.

The intricate nature of underwriting amid these conditions is becoming increasingly complex, as noted by AM Best. Insurers are now facing heightened credit risks and broader macroeconomic uncertainties, which might adversely affect their balance sheets and reserve adequacy. Such an environment necessitates meticulous appraisal of prospective policyholders and more cautious underwriting judgments, given the volatility introduced by the current trade policies. Allianz, a global financial giant, alerts that the United States finds itself immersed in what can be characterized as a comprehensive trade conflict, with global average tariff rates soaring to levels unseen since the 1890s, now estimated at 25.5%. Tariffs specific to Chinese imports are pegged at 130%, while those on European goods average at 9%, excluding specific sectors such as semiconductors and pharmaceuticals.

The legal ramifications of these trade disruptions are under scrutiny, with legal experts like Jeff Kiburtz and Lisseth Ochoa-Chavarria from Pillsbury Law evaluating their impacts across various insurance lines. These include political risk, directors and officers liability, builder’s risk, subcontractor default, and marine insurance. Although tariffs do not physically damage property, their financial and operational repercussions might trigger claims under these policies. The American Property Casualty Insurance Association also raises alarms over potential rises in claims costs within construction and personal auto insurance—the latter being the largest segment of US property-casualty insurance, encompassing roughly a third of total premiums. AM Best has echoed these concerns, correlating inflationary pressures from tariffs with increased claims severity and exacerbated underwriting complexities.

Looking ahead, Allianz anticipates that average US tariffs could decrease to 10.2% by the last quarter of the year, contingent upon successful bilateral trade negotiations. Despite this forecast, tariffs on automobiles, parts, steel, and aluminum continue to impact trade with China, Mexico, and Canada, notwithstanding a temporary 90-day suspension on additional duties. Ann Modica, an AM Best director, suggests that the ongoing uncertainty may alter long-term risk perceptions, potentially unsettling market stability. Furthermore, Allianz's economic projections include a 2.3% growth in global GDP for the year, while predicting a 16% increase in US business insolvencies, in contrast with a 7% rise globally. The divergence in inflation patterns—with US inflation potentially reaching 4.3% by summer compared to a European decline—might necessitate distinct monetary policy adaptations. Meanwhile, PwC US advises insurers to rigorously stress-test their portfolios, adjusting underwriting methodologies and pricing frameworks to accommodate the medium- to long-term impacts of prevailing tariffs and inflation dynamics. These evolving developments invite speculation about their potential consequences on insurance pricing, claims processing, and credit markets. What are your insights on these economic shifts and their implications for the insurance sector?