Increased U.S. tariffs are causing significant detrimental effects, claims a report by Swiss Re
The global insurance industry is bracing for a slowdown as US tariffs take their toll on the economy, according to the Swiss Re Institute's World Insurance Sigma report.
Consumers and firms have started to cut spending and investments in response to the uncertainty caused by tariffs, which is expected to have a ripple effect on the insurance sector. Heightened awareness of risk may benefit insurers, but the overall impact could be negative.
US tariffs are expected to increase prices for auto parts used for repairs, as well as new and used car prices for vehicle replacement. This could lead to a significant increase in motor repair and replacement costs, with US motor repair and replacement costs forecasted to grow by 3.8% in 2025.
The tariff-driven economic impacts are slowing insurance premium growth. Swiss Re forecasts US property and casualty direct premiums written growth at 5.5% for 2025 and 4% for 2026, indicating a moderation compared to previous years.
The tariffs are also affecting other insurance sectors, such as construction, agriculture, cargo, aviation, marine hull, health insurance, and workers' compensation. Construction costs are expected to rise by 3.6% in 2025 due to tariffs.
Global trade and GDP growth are also being affected by US tariffs. Inflation-adjusted global GDP growth is forecasted to decrease from 2.8% to 2.3% in 2025 and grow slightly to 2.4% in 2026.
The slowdown in global economic growth is expected to weigh on insurance demand. After a resilient 2023 powered by strong US economic growth, the world economy is expected to slow by 0.4 ppts. to 2.2% real GDP growth in 2024.
However, there could be some silver linings. Insurance demand could be boosted by growth from fiscal stimulus, for example in China and the EU. Economic and financial disruption lines of business, such as credit and surety insurance, could see increased demand.
Despite the challenges, the global insurance industry is expected to rebound from the 2025 tariff shock, with somewhat firmer growth of 1.8% in 2026. China's GDP growth is expected to slow to 4.7% compared to 5.0% in 2024.
In Europe, policy uncertainty will weigh on economic activity, and result in unchanged growth at 0.8% this year. The insurance industry is expected to face a harder market in 2023 due to inflation.
In conclusion, US tariffs are creating higher claims severity and operational costs in certain insurance lines, exerting downward pressure on global GDP growth and insurance premium growth rates, amid increasing financial market volatility and geopolitical fragmentation. It is a complex situation that the global insurance industry will have to navigate carefully in the coming years.
Events in the global insurance business sector are being influenced by finance-related factors, such as the slowdown in economic growth due to US tariffs. This slowdown is expected to affect insurance demand, particularly in sectors like motor repair and replacement, construction, and global trade. Moreover, the overall impact of US tariffs is predicted to cause a negative effect on the insurance industry, leading to increased claims severity and operational costs in certain lines, with the industry needing to navigate these challenges carefully in the coming years.
