With new tariffs being introduced by the United States and reciprocal tariffs implemented by Canada and other trading partners, price increases on many consumer goods are expected.
Tariffs are taxes imposed by a government on foreign goods entering their country, and they increase the cost of goods consumers pay in the country importing the goods. Many vehicles and parts are imported into Canada, so tariffs may drive up the costs of vehicle repairs and replacements, thereby increasing the amount insurers pay for claims, and ultimately increasing insurance premiums Albertans pay.
Here’s what to expect:
Higher vehicle repair costs: Since many car parts are imported from other countries, tariffs will increase the price of repair costs for drivers.
Higher replacement costs: Just like repair costs, the price of new and used vehicles will increase because the imported parts of the cars are subject to tariffs. Therefore, insurers may have to pay more for total loss claims and vehicle replacements.
Delays in repairs: Supply chain disruptions from tariffs could lead to longer repair time lines, affecting claims processing and increasing costs due to temporary vehicle rentals.
What does this mean for my vehicle insurance?
Higher claims costs: In the event of a loss, physical damage costs will increase due to the extra tax on imported car parts; claims costs are a significant factor in determining the price of auto insurance.
To account for the increased cost of all vehicle repair and replacement claims, insurers will face cost pressure. However, under the Ministerial Order, insurers cannot be approved for more than a 10% increase in a twelve-month period and there are no exceptions for the recently announced tariffs. Most Albertans are also protected by the Good Driver Rate cap, limiting the amount your premium can increase at renewal.
What does this mean for the adoption of electric vehicles?
Tariffs may slow the adoption of electric vehicle technologies, especially in the U.S., since Chinese automakers are leading in areas like connectivity, autonomy, and electrification due to their efficient development. Market research data has shown repairs for electric vehicles are costing 31% more than non-electric vehicles. Canadians have also imposed tariffs on Chinese electric vehicles, mirroring actions done by the U.S., but Canada’s adherence to the World Trade Organization’s policies may impact how trade disputes are resolved.
However, unlike the U.S., the adoption of electric vehicles in Canada continues to increase, partly due to the improvement in efficiency, and partly due to federal incentives to meet climate goals.
Recommendations for Policyholders
Review Your Policy: if you drive a newer vehicle ask your insurance professional what coverage is available to cover the increased replacement cost. If you drive an older vehicle, you may want to opt-out of unnecessary optional coverage if your premiums are too expensive for your budget.
Drive Safely: To avoid costly repair and replacement claims, remember to drive safely and defensively on the roads. Traffic convictions increase your premiums, and avoiding accidents means avoiding higher repair costs.
Maintain Your Vehicle: Properly taking care of your vehicle can prevent the need for high repair or replacement costs in the event of a mechanical breakdown.
Discounts: Many insurers provide discounts depending on your situation. You may want to use UBI programs if you don’t drive often or bundle home and auto insurance for better rates. Ask your insurance professional about any discounts they offer.
Shop the Market: If your premiums are too expensive for your budget, even with discounts, you may want to find quotes from other insurers. However, remember that the rate cap does not apply if you switch insurers.
While we are still unsure of the long-term effects of tariffs on insurance costs, it is important to stay informed on the current tariffs and potential changes to your policy as a consumer. Rely on trusted insurance professionals to help better understand the situation and your insurance costs.
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