Experts project Trump tariffs will boost car insurance costs

Shopping for auto insurance bargains has reached record numbers, according to surveys, as premiums are expected to spiral more than 5% on average this year. There are few bargains to be found, however, and the task is going to be more difficult if the Trump administration goes through with proposed trade tariffs on Mexico and Canada.

Experts at Insurify, a Cambridge, Mass.-based company that helps people compare and buy car and home insurance, project that tariffs would boost the national average cost of full-coverage car insurance by 8% by the end of 2025, from $2,313 to $2,502.  Without the tariffs, they said, rates would rise an average of 5%. In other words, rates would rise 60% more with tariffs than  without them.

The Insurify data science team analyzed how the cost of vehicles and individual auto parts affect car insurance premiums to project how rates might rise with the proposed tariffs. The U.S. imports about 32% of its total auto parts supply from Canada and Mexico, including certain components for which there’s no manufacturing in the U.S. Repair costs zoom as the tariffs take hold and with it the cost of insuring autos.

Mexico provides 43% of auto parts

Individually, Mexico provided 43% of total U.S. auto parts imports between January and November 2024, according to Mexico’s National Auto Parts Industry. The 25% tariffs would apply to those imports, with producers likely to raise prices to offset the added costs. Eventually, those prices would affect auto insurance rates.

“As the price of replacement parts increases, premiums will have to increase accordingly,” said Daniel Lucas, carrier relations manager at Insurify.

President Donald Trump said Monday his planned tariffs on Mexico and Canada are “on time” and “on schedule” to be put in place next month after a 30-day delay when both countries pledged to upgrade border policies.

The proposed tariffs on steel and aluminum could further increase prices for cars and auto parts. Mexico and Canada accounted for about 35% of U.S. steel imports in 2024. About half of U.S. aluminum imports come from Canada.

12 car brands assemble in Mexico

Twelve popular car brands assemble models in Mexico. Audi, Ford, Mazda, and Nissan each have multiple models with more than 50% of the vehicle’s parts coming from Mexico.

With tariffs, New York would see the annual cost of car insurance increase by $489 by the end of 2025, the most of any state, with $110 of the increase attributable to tariffs. Insurify projects the cost of full coverage would rise in each state after tariffs.

Without tariffs, Insurify projects that car insurance rates would decrease or remain flat in five states: Vermont, New Hampshire, Hawaii, New Mexico, and Idaho. With tariffs, however, rates would increase in every state.

Tariff advocates say they would increase automakers’ willingness to buy U.S.-made auto parts and consumers’ willingness to buy vehicles built domestically. Automakers currently outsource some of that manufacturing, which lowers costs. The tariffs would nullify those cost savings, Insurify said, potentially persuading more businesses and people to instead purchase parts and vehicles from companies that conduct more operations in the U.S.

Insurify’s Lucas said it would take time for manufacturing to move more toward the U.S. and might hesitate to take on the cost of moving operations across borders when tariffs may not be permanent.

Manufacturing capacity at issue

For some auto parts, no manufacturing capacity currently exists in the U.S. Wire harnesses, seat trims, and armrests used by American drivers are entirely made abroad, as they’re too expensive to make in the U.S., according to Wolfe Research, a New York-based financial research firm.

The up-front price increases on parts could also limit supply, further fueling price increases, as U.S.-based parts warehouses may choose to carry less stock on hand while waiting to see if tariffs last.

“All these factors can add to the cost of a claim — more expensive parts, lower domestic supply, and a longer supply chain that adds to rental costs, since vehicles take longer to repair,” Lucas said.

Meanwhile, the hunt for auto insurance bargains is continuing with alacrity. Both auto and property insurance shopping saw 20% year-over-year increases in the fourth quarter of 2024, according to TransUnion research.

Auto insurance shopping rates up

Last year saw steadily increasing shopping rates for auto insurance that trended higher than the previous year and ended 20% above, TransUnion said.

In terms of total number of shoppers, 2024 had 11% more shoppers than 2023. Additionally, TransUnion’s consumer quarterly surveys showed 40% of shoppers switched providers; this figure has remained consistent for the past year and a half but represents an increase from historical averages closer to 30%.

“The increase in shopping levels was initially attributed to aggressive rate hikes and targeted underwriting actions by carriers in 2022 and 2023,” the TransUnion report said. “While these measures were necessary to restore pricing and underwriting discipline, they also encouraged
— and often forced — customers to look for other options.”

A dual challenge for insurers

Auto insurers are facing the unenviable dual challenge of holding on to current customers while also winning new business, the report said.

The numbers jibe with another survey by J.D. Power that showed record levels of auto insurance shopping in the fourth quarter of 2024. However, consumers faced with challenges finding a more competitive premium as essentially all insurers were aggressively taking rate.

Just as rate increases have cooled a bit, the prospect of tariffs loom and has sent more people shopping. The shopping rate in the last quarter tied with the second quarter of 2024 as the highest shop and switch rate in history, J.D. Power said.

“The leveling off of rates has led not only to a spike in shopping but an increase in switching, as some consumers are finding better rates available, J.D. Power said.

“We expect this trend to continue into 2025 which will mean carriers will need to shift strategies to focus on retention as market competition for new customers will certainly increase,” the report concluded.

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].