Why auto insurance costs could rise due to tariffs and U.S. trade war

Yahoo

20-04-2025

Within two weeks of U.S. President Donald Trump's latest tariffs announcement, experts say Canadian auto insurers and vehicle manufacturers may not be able to recover from the damage done by levies.
On Wednesday, federal Finance Minister Francois-Philippe Champagne introduced a relief measure that allowed auto companies manufacturing vehicles in Canada to import a limited number of vehicles, compliant with the Canada-United-States-Mexico trade agreement, that are exempt from retaliatory tariffs.
However, the number of vehicles a company is permitted tariff-free will drop if there are reductions in Canadian production or investment.
The measures follow Trump's April 3 announcement of 25 per cent tariffs on all imports of automobiles to the U.S., with a partial carve-out made for vehicles built under the CUSMA. Ottawa, in response, put similar tariffs on U.S.-made vehicles bound for Canada.
The tariffs by U.S. and Canada have stressed an industry already weighed down by rising costs of auto parts, manufacturing and natural disaster mitigation.
'It's going to create issues with the availability of products we need when people are getting into accidents, whether that's parts or replacement vehicles, the tariffs themselves and the Canadian tariffs,' Aaron Sutherland, vice-president for the Western and Pacific region for the Insurance Bureau of Canada said.
'That's adding significant cost pressures to the prices of auto parts, of replacement vehicles and ultimately that goes into premiums,' he said.
Stellantis, General Motors and Ford have announced they have paused production to study tariffs, to resolve other problems, or to retrofit an existing plant.
On April 2, Stellantis announced it would pause operations at its Windsor, Ont., assembly plant to observe the impact of tariffs for two weeks. The company had already paused retooling an assembly plant in Brampton, Ont., in late February, a refitting that was estimated to take two years and cost $1.3 billion.
The company had said it plans to restart operations in Windsor on April 21, but has not said anything new about its Brampton retooling.
The week after Stellantis' announcement, General Motors announced it was temporarily pausing production of its electric cube van, known as BrightDrop, that it had been producing in Ingersoll, Ont., due to market conditions and inventory.
The company informed Unifor, the union representing workers in the auto industry, that they planned to initiate temporary layoffs, starting April 15, with some workers returning in May for limited production.
The company added it would reopen the plant in the fall at reduced capacity, which Unifor states is expected to mean the indefinite layoff of at least 500 workers.
In July 2024, Ford scrapped its own plans to retool its assembly plant in Oakville, Ont., to build EVs, stating it would instead produce large pickup trucks there.
Despite a report in the Japanese newspaper Nikkei that Honda would be moving its production to the U.S., the company stated last week it will stay in Canada for the foreseeable future and continue manufacturing at full capacity.
Toyota has confirmed the same.
'When we see companies like Stellantis pausing operations, or shutting down … that's going to create issues with the availability of the products we need when people are getting into accidents, whether that's parts or replacement vehicles,' Sutherland said, leading instead to higher costs absorbed by insurers to replace the parts.
Currently, Alberta insurers have been set a rate cap of 7.5 per cent, including two per cent to account for natural disasters.
But most insurers won't be able to put the cap into effect until July, according to a spokesperson for the Automobile Rate Insurance Board, or 12 months after the 3.7 per cent cap for 2024 was instituted.
The higher costs incurred by tariffs places more pressure on insurers in excess of the prices they can charge customers, according to Sutherland.
'The Alberta government has already confirmed that insurers are losing 15 cents on the dollar for every policy they sell,' he said. 'What that means is you're seeing insurers unable to continue selling coverage in that province.'
The last couple of years saw several auto insurance companies close their door on the province, citing claim costs that exceed profits and lack of profit growth.
Zenith Insurance was among the first to leave in the summer of 2023, followed by Sonnet Insurance Company and Aviva subsidiary S&Y in 2024.
Credit rating agency Morningstar DBRS last year characterized the province as being in an 'auto-insurance crisis,' despite the fact drivers in Alberta pay some of the highest premiums in the country.
'You're hearing more and more from customers who can't get the coverage, that they're seeing real challenges in that,' said Sutherland. And now the added pressure of the tariffs will 'further squeeze the availability of coverage in the auto insurance marketplace, unless the provincial government takes action to remove other costs from the system or allow insurers to reflect the cost of tariffs in their rates.
'There isn't any room to absorb the increased cost of tariffs.'
The pressures are compounded by the uncertainty of the tariffs and Trump's changing stance on the measures, leaving businesses in both countries confused and frustrated by how to respond to changing prices and costs.
One tariff that has remained consistent is that on steel and aluminium, according to Sutherland, which are both critical components of auto manufacturing and driving up costs.
'The longer those remain, the more expensive the price of repairs,' he said. 'And insurers today are unable to account for this in their rates and that isn't sustainable for any industry. It's making an untenable situation worse.'
This isn't the first time the U.S. and Canada have warred on tariffs. The first Trump administration announced a similar round of tariffs on Canada in 2018, sparking a year-long back-and-forth until both countries agreed to lift them in May 2019.
Should tariffs be lifted in the near future, 'the damage is still done,' Sutherland said. 'We're seeing clients shut down, we're seeing furloughing of work. And all that means is that product is going to get scarcer and more expensive.
'Even if tariffs were lifted tomorrow, a lot of these cross pressures are already built in at this point.'
Alberta pauses some of its fight-back plan against the U.S. amid tariff dispute
How Alberta's planned auto insurance overhaul stacks up against other provinces