What temporary tariff halts and new housing hopes mean for clients

A pause on some tariffs creates a window for Canadian companies to re-examine their risk profiles and work with brokers to secure needed coverage.

Both Bay Street and Wall Street are cheering a Thursday ruling from the U.S. Court of International Trade that, at least temporarily, tamps down the 10% tariffs the White House imposed on most countries, and drug-related emergency orders setting 25% tariffs on some goods from Canada and Mexico.  

The ruling says, “The Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President by [the International Emergency Economic Powers Act] to regulate importation by means of tariffs. The Trafficking Tariffs fail because they do not deal with the threats set forth in those orders.”

It had been argued by U.S. government lawyers that illegal drugs were being brought into the U.S. from Canada and Mexico alongside legitimate imports.

However, the trade court’s ruling has no bearing on 25% tariffs on Canadian steel and aluminum, because those were imposed under Section 232 of the 1962 Trade Expansion Act, which allows the U.S. president to set tariffs for national security reasons. The status of some pending U.S. tariffs, including on Canadian lumber and pharmaceuticals, are uncertain.

Opportunity for brokers

Though the White House is expected to appeal the ruling, the tariff pause gives brokers more leeway to reassess their Canadian clients’ exposures and present new insurance solutions.

Some companies may use tariff lulls to stock up on certain key materials, Bobby Thompson, a partner in KPMG Canada’s audit division, shared during a recent Canadian Underwriter podcast. Construction companies, for example, often import flooring products from the U.S., even though Canadian builders have good access to lumber. For them, stockpiling those materials reduces the economic impacts of both U.S. tariffs and Canadian retaliatory tariffs.

Yet, such stock increases can raise safety and security risks. Goods languishing in warehouses create economic risks for companies, says Jake Hovinga, commercial lines manager at Mitch Insurance. Plus, imposition of tariffs directly increases the value of goods roughly in line with the percentage of those tariffs.

“We need to be reviewing limits with clients where maybe they have more stock in their warehouse than usual,” and are not selling the goods as quickly, he says.

Building boom?

Additional optimism arrived via King Charles III’s Speech from the Throne this week. The document opening Canada’s parliament commits to major economic initiatives, including large-scale increases in housing construction.

“The Government will undertake a series of measures to help double the rate of home building while creating an entirely new housing industry — using Canadian technology, Canadian skilled workers, and Canadian lumber,” as noted in the speech, nodding to the prefabricated and modular housing industry. These types of building methods are currently underutilized in Canada.

Originally associated with the building of low-cost mobile homes, modular building can now produce complete structural segments that can be assembled like Lego bricks on construction sites to create full-sized single- and multifamily homes. The process could be a boon for home builders since the modules are produced on factory floors that aren’t impacted by Canada’s sometimes unforgiving weather.

In most cases, modular dwellings are insured using the same policy types as conventional site-built homes. And, for builders, there can occasionally be insurance claims related to shipping of the modules, which have to travel by a combination of road, rail or sea to reach building sites.  

For brokers and insurers with longer memories, promises of a swift ramp-up in homebuilding might bring to mind the widespread structural leaks that plagued newer condo units, particularly in Vancouver 20 years ago.

More recent housing boomlets in Toronto and Ottawa saw problems, which led to damning reports from auditors investigating construction practices in those cities.

Among other things, Toronto’s report found evidence that construction “proceeded [sometimes] without the prescribed inspection because permit holders did not notify Toronto Building that work was ready to be inspected.” It also said deficiencies found by inspectors were not consistently documented or did not receive the necessary follow-up. Meanwhile, Ottawa’s report found issues with the timeliness of when occupancy permits were issued.

Hopefully, the coming construction wave won’t build a raft of new claims for P&C brokers and insurers to navigate.