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With tariffs on Canadian goods set to take effect Tuesday, the Canadian property and casualty insurance industry is bracing for substantial impacts.

U.S. President Donald Trump announced Saturday that 25% across-the-board tariffs would take effect on imports from Canada effective Feb. 4, with the exception of energy resources, which would have a lower 10% tariff at a later date.

“From an insurance perspective, this will hit us hard,” Ken Worsley, chief operations officer at Nova Mutual Insurance Company, writes in a LinkedIn post Monday. “Investment income is already down this morning, and if these tariffs stay for the year, we will need to ensure we are profitable on underwriting or we are into our surpluses and that’s never good for any mutual insurance company.

“Premiums are already fast approaching unaffordability to many Canadians, and this will exacerbate that,” he continues. “The commercial soft market could swing quickly back.”

The potential is for reduced revenue, and therefore reduced casualty premiums, along with reduced stock and income limits, but higher loss costs.

The expense side of the business will grow, and claims costs will rise for a number of reasons, Worsley writes.

 

Supply chain disruptions

Like during the COVID-19 pandemic, the supply chain will be disrupted. Auto part costs will increase, delaying shipments, making car rentals more expensive and harder to find, and increasing the price and scarcity of building materials, Worsley tells CU.

For agriculture insurance in particular, farm machinery costs for parts and replacement will increase.

Farmers will also not be able to sell their products for the same price, which could have a domino effect, Worsley warns. Revenues will decrease, “which in turn means less resources for maintenance and, in turn, fires could result.

“Any trade agreement will see a further reduction to supply management and, in turn, a drop in revenue, and the circle starts from the above lack of maintenance again.”

Business interruption (BI) policies, which require a physical trigger, could also be affected. If there is a fire at an agricultural building because of reduced maintenance, for example, that would trigger the policy.

BI coverage is based off company profits, and ‘actual loss sustained’ coverage can continue for 12, 18 or 24 months past the date of loss, Worsley tells CU. “This…would be reduced if they make less profit, having an impact on gross written premiums and that having an effect on expenses and profitability on the whole.”

 

Government aid

To help “agri-food sector resilience during market instability,” the Ontario government last week announced a $100 million annual increase to risk management funding for farmers.

Over the next three years, Ontario’s Ministry of Agriculture, Food and Agribusiness will phase in the $100-million increase to the risk management program (RMP) for beef, pork, sheep, veal, and grain farmers and the self-directed risk management program (SDRM) for fruit and vegetable growers, the Ontario Federation of Agriculture (OFA) says in a press release.

“RMP and SDRM help provide financial protection for farmers against unprecedented challenges beyond their control, including inflation, supply chain disruptions, market downturns, and climate risks,” OFA explains.

Ontario’s agri-food sector contributes $51 billion to the provincial economy, with $26.2 billion in exports. According to OFA, Canada exports a large part of its agricultural production around the world, with approximately 60% of exports going to the United States. Virtually all (99.5%) of greenhouse vegetables grown in Canada are exported to the U.S.; Canada also exports a large part of its beef, pork and canola oil production.

In response to Trump’s proposed tariffs, Prime Minister Justin Trudeau announced retaliatory tariffs of $30 billion on U.S. imports beginning Feb. 4, followed by $125 billion more in 21 days. Canada’s first round of tariffs include products such as live poultry, meat, milk, and fruits and vegetables.

As of CU press time, Trudeau was expected to speak with Trump about the proposed tariffs.

“Let’s hope this is short-lived…,” Worsley says. “We as Canadians must remain steadfast in our resolve around supporting one another and Canadian business.”

 

Feature image by iStock.com/MicroStockHub

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.