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Although it’s difficult to predict the full impact of U.S. tariffs on Canadian goods, supply chain disruptions could affect various aspects of the property and casualty insurance industry, Aon says in its Spring 2025 Canadian Insurance Market Update report.

“Supply chain disruptions from tariffs may impact the industry by increasing the costs of auto parts, building materials, and other essentials, leading to higher indemnity expenses,” Aon says in the report, released Monday. “Delays in the supply chain also extend claims-related expenses, such as alternative living expenses, business interruptions, rental car costs and storage costs.

“Ultimately, these disruptions result in higher indemnity costs and increased secondary expenses.”

Canada already has a 25% tariff on aluminum and steel products. On Apr. 2, U.S. President Donald Trump also signed an executive order imposing a 25% tariff on all cars manufactured outside the U.S.

Canada was not included in a list of countries subject to a baseline 10% reciprocal tariff announced by the Trump administration on Apr. 2. The implementation of the reciprocal tariff has been delayed for 90 days, except for Chinese goods, on which the U.S. has imposed a 145% tariff. China raised its duties on U.S. goods to 125% in response.

The tariffs are creating a “great deal of uncertainty in the marketplace,” Aon says. The brokerage notes total insured values and import bonds would also be affected, requiring insureds to seek additional limits and surety capacity.

In the auto liability segment, clients exposed to U.S. auto risk are seeing upward pressure on primary limits before excess casualty insurers will attach to programs, Aon notes in the report. And individually-rated commercial auto programs still face challenges.

In general, the commercial auto insurance market is showing moderate signs of improvement, Aon says, largely driven by increased competition in the marketplace. “While appetites have broadened, outcomes are largely based on account performance as insurers remain heavily focused on profitable returns.”

Overall, commercial auto insurance pricing remains stable and minor reductions have been achieved with the introduction of competition for best-in-class and well-performing accounts. There is sufficient capacity within the market as insurers compete for growth, the report adds.

Driver experience, safety protocols, and vehicle maintenance remain a key focus, particularly for long-haul and hazardous class exposures.

However, despite signs of improvement in the commercial auto space, high claims costs continue to impact the market, the report says. Canadian auto theft claims dropped by 19% in the first half of 2024 compared to 2023, but claims have increased 138% over the past decade.

“While it is too soon to predict the impact of the U.S. tariffs on the market, the auto sector may be impacted by increased replacement costs, exasperating already challenged claims costs,” the report says.

In Alberta, the 3.7% rate cap the provincial government placed on auto rates in 2023 “eroded insurer profitability, forcing some markets to pull capacity from the province,” Aon says. As of Jan. 1, 2025, the cap increased to 7.5% — a 5% cap plus an additional 2.5% insurers can increase rates due to NatCat-related losses and costs. Aon says the 7.5% cap is expected to “moderately [ease] conditions in the Alberta market.”

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Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.