PwC UK’s Alex Bertolotti and Mohammad Khan comment on the impact to the UK insurance market of the US placing new tariffs on its global trading partners - and retaliatory tariffs on US products from those countries, which could exacerbate the impact.
Alex Bertolotti, Head of Insurance, PwC UK:
“We believe that the introduction of tariffs will increase the cost of claims, particularly in motor and home, and as a result there will be pressure to pass these costs on to consumers.
“Anything that extends the time taken to undertake a repair increases the expense of an insurance claim, and imposing tariffs typically leads to supply chain pressures as it takes longer to import goods due to the time taken to administer or implement the tariff.”
“As these tariffs have come around with little warning, insurers have not had time to stockpile goods such as car parts, which would have been one way of delaying the impact on insurance costs. This means the impact of these tariffs will likely be felt much sooner than, for example, following Brexit, which the industry had more time to plan for.”
Car insurance:
Mohammad Khan, PwC UK head of general insurance:
“Claims costs are likely to rise, which may reverse the recent reductions we’ve seen in motor and home insurance prices. The UK imports most of the parts we use to repair damaged cars, so an increase in the cost of these parts from the US, China and EU would drive up repair costs, making insurance more expensive. Electric cars will be disproportionately affected as we import a greater share of electric parts, which are also typically more expensive.”
Home and commercial property insurance:
Mohammad Khan, PwC UK head of general insurance:
“Tariffs on imported construction materials like steel and timber could increase the repair or rebuild costs for structures after being impacted by events like fires, storms or floods. This will likely add to home and commercial property insurance costs rising.”
Global speciality insurance:
Alex Bertolotti, Head of Insurance, PwC UK:
“The UK has a thriving market in writing global speciality insurance - writing just under 10% of all global speciality risks and providing insurance for unique, complex, or high-risk situations that fall outside standard insurance policies, such as cyber threats, oil tankers, airplane and satellites. Tariffs will place pressure on premium rates for these specialist policies, likely driving up insurance costs for global businesses that require them.
“Any insurance products that rely on parts being repaired or replaced - policies such as marine cargo, marine hull, manufacturing and repair breakdown - will likely be impacted.”
The claims costs of some of the unique insurance products provided in this market will likely increase:
Business interruption insurance - tariffs may disrupt global supply chains, leading to loss of revenue for many businesses, which is covered by some property or business interruption policies.
Political risk insurance - if tariffs trigger retaliatory trade measures, this could increase the risk of claims being made. For example, if an overseas firm cancelled a contract with a UK steel supplier due to tariffs causing steel costs to rise.
Trade credit insurance - higher tariffs may strain international buyers, increasing the risk of payment defaults.
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