How tariffs are shaping insurance pricing dynamics: A Q&A
Cost volatility is pushing insurers to rethink strategy
Tariffs might sound like a topic reserved for global trade desks and political roundtables, but their ripple effects also show up in unexpected places, including the insurance industry.
The pressure is building. And for insurers, the consequences may feel familiar, though the cause is new. We saw a similar pattern during the pandemic: rising external costs, consumer sensitivity, and mounting pressure on margins.
So, what exactly is changing, and how can carriers stay ahead?
In this Q&A, Michael Nadel, Michael He, and Jordan Laugeni unpack how tariffs are quietly reshaping the industry, how consumers are responding, and what insurers can do to protect profitability, retention, and long-term growth.
Q: How do tariffs put pressure on insurers?
Michael Nadel: When claims costs rise, due to tariffs on auto parts, construction supplies, or manufacturing gear, insurers are the first to feel the pressure. But pricing doesn’t move as fast.
In many personal and small commercial lines, premiums are regulated. Rate changes must be filed with and approved by state Departments of Insurance—a process that can take months. In the meantime, margins shrink.
Q: How do consumers respond to these shifts?
Jordan Laugeni: While tariffs drive up the cost of claims and insurers can’t immediately raise prices, consumers, on the other hand, respond fast. Even before seeing new renewal rates, rising living costs can tighten household budgets and trigger a familiar reaction: shopping for cheaper insurance options.
Shopping spikes are especially sharp in price-sensitive segments (e.g. small businesses that are especially budget-conscious). Simon-Kucher benchmarks show that even modest premium hikes of 5% to 8% can increase shopping intent by 25% to 40%. In inflation-driven markets, this effect is even more pronounced.
Q: What kind of challenge does this pose for carriers?
Michael He: The challenge for insurers is twofold. Retention drops as customers react to rate hikes. At the same time, acquisition becomes trickier as shoppers flood the market looking for short-term savings.
Insurers must answer three urgent questions:
- How do we retain profitable customers facing necessary price increases?
- How do we attract new shoppers who are switching due to competitor pricing?
- How do we balance growth and profitability in a more volatile book?
Q: What can insurers do to strengthen their strategy?
Michael He: There are eight immediate levers insurers can pull:
- Offer tailored discounts to both new and existing customers.
- Use advanced segmentation to shield high-LTV policyholders from churn.
- Focus on retention tactics that highlight value beyond price.
- Improve renewal messaging: be clear, empathetic, and service-focused.
- Simplify digital quote-to-bind flows for rate-sensitive buyers.
- Encourage bundling to increase stickiness.
- Reengage recently lost customers with personalized offers.
- Invest more in proven, high-ROI marketing channels.
Q: Can insurers really control outcomes in this kind of environment?
Jordan Laugeni: Insurers can’t stop tariffs or inflation. But they can choose how to respond. The carriers that act now, retaining the right customers and attracting the right prospects, will build a stronger, more resilient book of business.
To learn more about how we can help you adapt to tariff-induced market disruptions, contact us today.
