Tariffs/Insurance
[Ed. Note: Heads up insurance industry. Claim costs come into focus with tariffs set to unfold] - "Liberation Day"
""The concept of “Liberation Day” is a cheap marketing gimmick designed to obfuscate truth"".
Wednesday, April 2, is "Liberation Day" according to President Trump. Consumers should indeed be prepared to be liberated—from the cash in their wallets, their retirement savings and potentially their jobs—as Mr. Trump escalates what the Wall Street Journal has repeatedly referred to as the “dumbest trade war in history.” But what does this mean for the hundreds of millions of auto, home and business policyholders who have already endured years of sharp premium increases? Prepare for rising premiums.
I’ve previously estimated that Mr. Trump’s tariffs on imported vehicles and parts could increase US personal auto insurance premiums by nearly $11 billion, which works out to almost $70 per vehicle carrying full coverage. Commercial auto insurance prices will also be pressured, adding billions in cost.
The Yale Budget Lab (YLB) projects the average price of a new car—which was about $48,000 in late 2024 according to Edmunds—will rise 13.5% or $6,400. When asked this weekend about the possibility that tariffs would drive car prices higher, Mr. Trump harrumphed “I couldn’t care less.” Based on Mr. Trump’s recent actions and comments, one can only assume that his implausible September 2024 campaign pledge to lower auto insurance premiums by half is now abandoned.
Drivers are still reeling from years of rate increases in the wake of the pandemic. The most recent CPI report indicated that auto insurance premiums were up 11.1% in February 2025 compared to a year earlier. Homeowners will share in the pain. The National Association of Home Builders estimates that increased tariffs on lumber, metals, drywall and many other construction materials will increase the price of a new home by $9,200. Home insurance premiums, which were already up 10%-15% in most states in 2024, will increase commensurately.
Lower income policyholders will be hardest hit. That’s because low-income workers spend a higher share of their income on consumption of goods (like vehicles and parts) and services (like insurance). As such tariffs are a tremendously regressive tax. The YLB estimates that tariffs will reduce disposable income for lower income households by 2.9%, but just 0.9% for upper income households.
There are no winners in a trade war. Everyone is a loser. All major investment banks and forecasting firms are dialing up their inflation and unemployment rate forecasts for 2025—and the probability of recession over the next 12 months is rising rapidly.
The concept of “Liberation Day” is a cheap marketing gimmick designed to obfuscate the truth about tariffs. The Economist this week summed it up nicely, stating that “Liberation Day may go down in the history books–not as the celebration that Mr. Trump intends but as economic malpractice of the highest order”
LINK TO ECONOMIST ARTICLE - SUBSCRIPTION REQUIRED
Robert Hartwig, PhD, CPCu, Clinical Associate Professor of Finance and Insurance & Director, Risk and Uncertainty Management Center. University of South Carolina
'Connected' Headline of the Day
Protection gaps expected to worsen across all lines of insurance business through 2030, finds Bain & Company
Uncertainty around long-term earnings sustainability, emerging risks, and affordability / access present new challenges for insurers
AI-driven industry improvements could allow revenue growth of 10-15%, operating expense savings of up to 30%, and reductions in P&C claims leakage of 30-50%
Protection gaps are expected to worsen across all lines of the insurance business through 2030 as insurers worldwide contend with rate-driven growth that is unsustainable, according to new research released today by Bain & Company.
Bain's report, Bridging the Protection Gap: Affordability, Access, and Risk Prevention, shows the challenges facing the insurance industry in matching price-to-risk profitably. This is in part due to changing risks such as the rise in natural disasters and cyberattacks, unaffordable property premiums, and the declining relevance of life insurance— especially among younger generations. Only one-quarter to one-third of the damage from natural disasters will be covered by insurance by 2030; for mortality, it could be less than half, Bain found.
"Bolstered by unsustainable tailwinds, insurance companies find themselves at an inflection point," said Sean O'Neill, head of Bain's global Insurance practice. "Over the past couple of years, we've seen rate increases in the property and casualty sector and interest-rate–driven annuity sales in the life sector. While capital and balance sheets remain reasonably strong, several challenges have emerged, and profitability has come under pressure for many lines of the insurance business. Insurers will need to be proactive and act now if they wish to navigate these impacts."
Investors are skeptical of many insurers' future earnings growth potential
Investors are skeptical about US insurers' prospects for future growth but are more bullish on life insurers in emerging markets, Bain's report shows. Valuations of US life players include negative "white space" from long-term earnings growth, suggesting either declining profitability or hidden losses yet to emerge from today's in-force blocks. P&C insurers face the same problem, albeit on a smaller scale, due to concerns around the sustainability of recent price increases alongside potentially increasing claims.
Research
Auto insurance affordability takes a hit—but still better than the 2000s
Consumers were shelling out about 1.9% of their income in 2003
Auto insurance costs have risen in recent years—but remain (slightly) better than the 2000s.
By the numbers: According to a recent study from the Insurance Research Council (IRC), the average U.S. household spent about 1.51% of its income on auto insurance per vehicle in 2022, the most recent year with available data.
The 1.51% ratio came from average insurance spending of $1,127—based on a median household income of $74,580 at the time, the report says.
While that’s an improvement compared to the peak of 1.9% in 2003, costs are expected to rise again.
The IRC says that number is expected to climb to 1.6% in 2023 and 1.7% in 2024 as insurers work to offset inflationary pressures.
What we know: Auto insurance premiums are driven by several factors—like accident frequency, repair costs, injury claims, and litigation. But costs also vary by state.
- North Dakota was the most affordable state for auto insurance with a cost-to-income share of 0.93% while Louisiana was the least affordable with a share of 2.67%.
- Meanwhile, Florida was the second least affordable state for auto insurance in 2022, but made strides to improve insurance affordability through legislative reforms in 2022 and 2023.
- The reforms aimed to address claim fraud and legal system abuse to (hopefully) stabilize the state’s property and casualty insurance market.
What they’re saying: ”While state-level data cannot directly address affordability issues among traditionally underserved populations, collaborative efforts to reduce these key cost drivers can improve affordability for all consumers,” Dale Porfilio, president of the IRC, said.
Consumers Complained the Most About These Insurance Companies in 2024, Report Says
Which insurance companies made consumers the least happy in 2024?
American Bankers Insurance most angered homeowners last year, and Infinity Insurance, an affiliate of Kemper, earned the worst rating from drivers, according to a P&C Specialist analysis of National Association of Insurance Commissioners (NAIC) data.
The NAIC maintains a database of consumer complaints about insurance companies. Its National Complaint Index scores insurance companies by dividing the company's share of complaints by its share of premiums in the U.S. market. The higher a company's score, the worse its performance rates in terms of customer satisfaction.
Based on their index scores, American Banker, an affiliate of Assurant, had the highest complaint score among homeowners who lodge complaints with the NAIC, P&C Specialist reported. And Infinity scored the worst among auto insurance companies.
Car insurance companies with worst complaint scores
Infinity's complaint index rating was 2.83 in 2024 based on 245 complaints for its private passenger auto business, according to the NAIC's database. That's down from 5.47 and 449 complaints in 2023.
The majority of Infinity's consumer complaints (243) came from California.
Trumbull Insurance, a subsidiary of The Hartford, had the second-worst score for auto insurance, while Farmers Insurance came in third, according to P&C Specialist's report. Infinity parent Kemper is the 17th-largest car insurance company in the U.S. by market share, according to the NAIC. Farmers Insurance Group is the sixth largest.
AI in Insurance
AI Can Fix Everything in Insurance | Insurance Innovation Reporter
There is no question of whether AI can improve insurance but rather which functions, how extensively and when.
Every time I read an article or a marketing piece espousing the astounding power of AI as applied to insurance, I cannot help but think about Gus Portokalos!
If you recall, Gus was the bride’s father in the 2002 hit movie ‘My Big Fat Greek Wedding’ who famously suggests “Put some Windex on it!” as a solution to all manner of problems including cuts and scrapes. Gus proudly related every word, phrase and meaning back to his Greek ancestry as a solution or fix to each conversation. A lot of people are treating AI in the same fashion.
Even the typically thoughtful Bill Gates gushed AI is “the first technology that has no limit” and “could be as revolutionary as the internet or mobile phones.”
COMPLETE ARTICLEireporter.com/ai-can-fix-everything-in-insurance/
Stephen Applebaum and Alan Demers as featured in Insurance Innovation Reporter
9 GenAI Strategies To Get Real Business Results
With 2025 well underway, the conversation around generative AI (GenAI) has shifted. Business and technology leaders are no longer asking what's possible—they're focused on what delivers real impact. With its rapid advancements, GenAI holds the potential to redefine industries, but success lies in moving beyond experimentation to execution.
To navigate this rapidly evolving space, I’ve drawn on my experience and insights from working with industry leaders to share key best practices for building and deploying GenAI solutions that drive meaningful results.
John Goodson, Chief Technology Officer, CCC Intelligent Solutions.
An Introduction to Agentic AI with Cognizant’s Craig Weber | Insurance Innovation Reporter
In the spring following the public launch of ChatGPT, I found myself at a table with software company executives and journalists discussing AI’s potentially sinister potential. Then some wag at the table said, “Since we’re all entertaining the prospect of AI taking over the world and enslaving humans, would it be too much to expect that the technology could at least improve customer service when you call up an airline?”
I haven’t called an airline for a while, but the sudden prominence of what’s being called “agentic AI” suggests that it’s likely to be a better experience soon if not alrea
dy. I recently discussed the technology with veteran industry observer Craig Weber, Head of Insurance Strategy for global IT services, consulting, and business process outsourcing company Cognizant (Teaneck, N.J.). We struck up the conversation about multi-agent AI frameworks owing to the recent launch of Cognizant’s NeuroAI multi-agent accelerator and Multi-Agent Service Suite.
Natural Language-Driven Concierge
Weber describes Agentic AI as a natural language-driven concierge that streamlines interactions by breaking down user queries into discrete steps, each one managed by AI agents trained for specific tasks. The multi-agent approach enhances process efficiency and delivers more human-like expertise. “What we think is exciting about agentic AI is that people don’t have to learn how to ask the question,” Weber observes. “They can just use their own instincts about what they want to know.”
To illustrate, Weber offers the example of an employee portal that uses agentic AI to integrate multiple HR, finance and operational systems. “Instead of requiring users to navigate different platforms, an agentic AI system understands their needs from a simple input—for example the statement ‘I’m moving to Boston’—and coordinates all necessary actions across various systems.
What has been so frustrating about earlier versions of automated service, for example via chatbot, is the poverty of its range of responses. Agentic AI is not only more complex in the structure by which it apprehends questions, but it can be trained on huge stores of relevant information. The result in terms of user experience is that—as ChatGPT users may have found—that the customer is rewarded rather than punished for the complexity of his or her question.
Anthony O'Donnell, Executive Editor, Insurance Innovation Reporter
State insurance regulator on pace of AI rules: 'We must go faster'
Artificial intelligence is developing fast, maybe too fast for state insurance regulators.
The difficulty in trying to write rules for the quick-moving AI, amid the slow pace preferred by regulators, was the main topic for discussion Tuesday during a meeting of the Big Data and Artificial Intelligence Working Group.
The group met during the spring meeting of the National Association of Insurance Commissioners.
In 2020, The NAIC adopted the Principles on Artificial Intelligence, establishing foundational guidelines for the ethical and responsible use of AI in the insurance industry. Three years later, the NAIC approved the Model Bulletin on the Use of Artificial Intelligence Systems by Insurers.
But not enough is happening for some who follow the AI issue.
“Are insurance consumers better informed and better protected, specifically in this area now, than they were [in 2020]?” asked Peter Kochenburger, a visiting professor of law at Southern University Law Center. “I would much prefer it's not a rhetorical question, but I think it is because there has yet to be a single, specific right or guideline that consumers have.”
Working group co-chairs Doug Ommen, Iowa insurance commissioners, and Michael Humphreys, Pennsylvania insurance commissioner, outlined a four-step process they are halfway through.
Humphreys pointed out that there is active dialogue to remind consumers that they have rights under existing insurance coverage. Likewise, 23 states and the District of Columbia have adopted the model bulletin on AI.
But Humphreys also agreed that action must come sooner rather than later.
Climate/Resilience/Sustainability
Why Some Insurance Markets Are Struggling and How We Can Fix Them
[Ed. Note: Highly recommended]
In the aftermath of the devastating fires that swept through Los Angeles neighborhoods in January, I visited the area to see the damage firsthand and meet with affected customers and employees. It was a heartbreaking scene – families mourning lost homes, businesses facing uncertain futures, entire communities grappling with unimaginable loss
While the full impact of the event is still unfolding, and much remains to be done to support these communities in their recovery, it is important that lessons from a tragedy like this lead us toward better approaches. That means taking meaningful steps to mitigate and adapt to more frequent extreme weather, as well as addressing the underlying factors that leave communities vulnerable to both personal and financial harm.
While climate change is rightly cited as an explanation, this is an incomplete answer to a more complex problem. Economic inflation, aging infrastructure and population migration into higher-risk areas have emerged as primary drivers of rising weather-related losses – trends that will likely continue. There is also a constellation of other factors. Consider, for example, the staggering cost of litigation abuse, as well as development decisions and building practices that fail to account for foreseeable extreme weather events.
Alan Schnitzer, CEO, Travelers
US Weather Service Merges Units as Staffing Pressure Rises
The U.S. National Weather Service will merge two of its largest forecasting units as it prepares for the loss of as many as 1,000 staffers.
Employees were encouraged to take early retirements as a handful of consolidations were announced during an all-hands meeting at the agency on Thursday with Director Ken Graham, according to people familiar with the matter who weren’t authorized to speak publicly.
Among the departments being merged are the Weather Prediction Center, responsible for national forecasts for rain and snow, and the Climate Prediction Center, which is responsible for seasonal outlooks and tracking the El Niño and La Niña cycle, according to an internal document seen by Bloomberg News. A weather service research laboratory will also merge with an environmental modeling center in suburban Maryland.
The agency didn’t immediately respond to requests for comment.
Los Angeles Wildfires
California expands FAIR Plan insurance limits amid escalating wildfire risk and market strain
As California contends with increasingly destructive wildfires and an unraveling property insurance market, state officials are racing to shore up the last line of coverage for many businesses and homeowners.
Last week, California Insurance Commissioner Ricardo Lara approved a significant expansion of the California FAIR Plan’s commercial property coverage. Under the new rules, the insurer of last resort will be required to offer up to $20 million in coverage per building, with a maximum of $100 million per location - more than double previous limits.
The expansion is a centerpiece of Lara’s “Sustainable Insurance Strategy,” a broad effort to stabilize California’s fractured insurance market amid mounting climate-related losses. In recent years, major carriers have pulled back from insuring properties in wildfire-prone regions, citing escalating claims and regulatory constraints. The FAIR Plan - intended as a backstop for those unable to obtain traditional insurance - has ballooned in response, covering more than 350,000 properties as of early 2025, a figure that has nearly tripled over the past five years.
“This targeted FAIR Plan expansion helps meet the urgent needs of homeowners associations, affordable housing developers, farmers, builders, and business owners who are being priced out or left without coverage altogether,” Commissioner Lara said in a statement. “It is a short-term solution with long-term benefits,” he finished hopefully.
Recommended Events
SIR 2025 Annual Conference & Exhibit Fair | May 4-6, 2025 | Chicago, IL
Curiosity at the Core - Sparking Innovation in Insurance Research
In the ever-changing insurance industry, a researcher’s curiosity is paramount. It drives the exploration of new trends, technologies, and methodologies, enabling the industry to adapt and thrive amidst constant change. This curiosity fuels innovation, leading to the development of more effective risk assessment models, personalized insurance products, and improved customer experiences. By challenging assumptions and seeking out novel solutions, researchers can empower the industry to stay ahead of emerging challenges and opportunities.
Join us in Chicago, May 4-6 as we address the ever-changing insurance industry and how our inquisitive nature can help drive insights and strategy. Join us to share insurance research knowledge and expertise, as well as diverse perspectives.
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Innovation
Toyota’s ‘Circular Factory’ Idea Could Be a Great Alternative to Junk Yards
[Ed.Note: The auto salvage industry has already been doing this for over a century and SGI (Saskatchewan Government Insurance ) in Canada has a similar model. Whether an OEM can do it better for their own cars is uncertain. If Toyota can incorporate lean manufacturing principles better than the salvage industry, there's a reasonable chance they can succeed.]
The first-of-its-kind program would make end-of-life vehicles live forever as part of your new car.
The Toyota Circular Factory is a new initiative that will curate what they call end-of-life vehicles (ELVs—junkers bound for the bone yard) and piece them out for repurposing, remanufacturing, and recycling. ELVs are vehicles tagged as hazardous waste, usually due to age or as the result of a crash.
With one junked car at a time, Toyota looks to reduce, reuse, and recycle its way into another profit stream while keeping trash out of well, actual streams. We’ve seen plenty of press releases describing sustainability and other green initiatives, but we have not seen many automakers talking about taking responsibility for its cars decades after they’re built. This could be an interesting idea.