U.S. tariffs will primarily impact costs and claims severity in the U.S. motor and construction sectors, according to Swiss Re Institute’s recently published Sigma report, entitled, “World Insurance in 2025: A Riskier, More Fragmented World Order.” Although the insurance industry is expected to remain profitable, financial market volatility, as well as uncertainty and fragmentation in the world order, are creating volatile market conditions that will continue in the coming quarters.
Global Insurance Market Trends
Tariffs and U.S. Claims Severity
“U.S. motor physical damage is the most tariff-impacted insurance sector,” notes the report. “U.S. tariffs are expected to increase prices for auto parts used for repairs, and also for new and used cars. However, claims severity increases should be modest relative to the post-COVID-19 inflation impact.” U.S. motor repair and replacement costs are forecasted to grow by 3.8% in 2025, over a 0.8% decrease Swiss Re forecasted the previous year. However, the number is still less than the annual increase of 14% in 2021 and 13% in 2022, states the report.
For construction, an increase of 3.6% in costs is expected in 2025, up from the 2.5% increase predicted originally. Claims severity will also increase in other lines that are dependent on imported goods, including agriculture, cargo, aviation, and marine hull. “Health insurance, workers’ compensation, and multiple other areas in casualty exposed to bodily injury claims would be impacted by pharmaceutical tariffs (discussed but not implemented at the time of writing).”
The report notes that insurers may struggle to adequately price risk if inflation outpaces underwriting adjustments, leading to margin pressure. Furthermore, loss ratios may worsen in high-inflation jurisdictions, particularly in the U.S.
Premium Growth Slowing Down
Furthermore, real growth in non-life premiums is forecasted to fall to roughly 2.6% in 2025, down from 4.7% in 2024, driven by weaker global economic growth; softening rates after several years of price hardening; and rising claims costs due to inflation and catastrophe losses. The number is expected to drop to 2.3% in 2026.
Globally, “[a]fter a strong showing in 2024, premium growth in the world’s insurance industry is slowing on both the non-life and life sides, impacted by global economic slowdown and the unstable policy environment,” explains the report, which estimates total premiums (life and non-life) to grow at 2% in 2025 (vs. 5.2% in 2024), with a marginal increase to 2.3% in 2026.
“[Localized] pricing strength remains in areas such as U.S. casualty due to their higher loss cost trends, but will likely not be sufficient to offset the overall growth downtrend,” the report states. “Still, improving results will be a key driver of property & casualty (P&C) sector profitability in the next three years.”
Global Impact of Tariffs
The long-term regime shift towards fragmentation of economies and market implies serious risks and costs for insurance,” the report explains. “Trade barriers and supply chain disruptions or reshoring may push up inflation for prolonged periods, feeding into higher claims costs.” Political fragmentation reduces international cooperation on risks such as climate change, pandemics, and cyber risk, increasing exposure globally. As a result, both firms and individuals have less insurance coverage, widening protection gaps, according to the report.
A weaker world economy and backdrop of policy uncertainty add downside risks to the outlook,” the report notes. Tariffs on U.S. goods increase risks to pricing and claims severity in several non-life lines of business, particularly in the U.S., which may slow the softening in non-life insurance rates. Furthermore, “a deglobalized economic, financial, and geopolitical environment would impede risk diversification, increase the cost of insurance, and ultimately prevent the closure of protection gaps.”
Upside Risks of Tariffs to Pricing
“Tariffs create upside risks in insurance pricing,” states the report. “Uncertainty compounds this as insurers may refrain from incorporating any significant reductions in claims severity into their models due to the high policy and economic uncertainty. Yet the likely modest impact of tariffs on claims severity implies limited price adjustments.” The softening in U.S. motor and property insurance markets may temporarily slow down as insurers consider the rise in claims severity; however, the softening is unlikely to pause in personal lines and commercial property, according to the report.
Uncertainty and Fragmentation in the Global Economy
“The unpredictable nature of U.S. policy changes so far this year has triggered some questions about the U.S. economy’s long-standing [recognized] status as a safe haven for global capital,” explains the report. “There is likely no going back to the open world trading economy prior to the U.S. ‘Liberation Day’ of 2 April 2025,” and the study has lowered growth expectations for most major markets in 2025. Furthermore, with the highest tariff rates since The Great Depression, the U.S. economy is anticipated to experience another “stagflationary shock in the second half of this year.”
Furthermore, according to the report, the environment of protectionism and U.S. isolationism, along with the re-escalation of geopolitical tension in the Middle East, raises costs and long-term fragmentation risks, including more volatile exchange rates and asset prices. “At the same time, the ability of the insurance industry to spread and absorb risk globally is under increased strain as the prospect of U.S. capital controls (such as taxes on dividends paid to foreigners, or on remittances) become just one of potentially several regime shifts.”
Uncertainty in U.S. tariff policy is also causing supply chain disruptions and impacts on spending, as threats of extremely high tariffs are followed by partial pauses or amendments, the report states. However, “once policy discussions are [finalized] later this year, [Swiss Re expects] the effective tariff rate on imports into the U.S. to settle at about 15%, close to peaks last seen in the Great Depression almost a century ago.” The most significant and direct impact is likely to be on trade flows, the report notes, with the OECD estimating that global trade volumes will be 2.1% lower than they would have been by the fourth quarter of 2026.
Although U.S. gross domestic product (GDP) growth is expected to slow to 1.5% in 2025 from 2.8% in 2024 and the labor market weakens, a rebound in late 2026 is anticipated “as the economy adjust to a ‘new normal’ of higher tariff rates, supported by a [stabilization] in market conditions.”
Fragmentation and Long-Term Costs
“Fragmentation has been taking place for several years and will now likely accelerate,” notes the report. “The erosion of trust in the U.S. dollar, which was mainly of academic interest during past shocks and crises, has become a more plausible risk scenario due to concerns over fiscal policy, geopolitics, etc. …Higher costs will be borne by firms engaged in international trade, which will likely face greater FX risks in a world without a single dominant vehicle currency.”
The shift to a more fragmented world order, driven by trade barriers, restrictions on capital movement, and political conflict, would cause significant challenges for the global economy, the report emphasizes. “Disruption in global supply chains—due to trade barriers or political conflict—could lead to higher inflation, feeding into higher claims costs.”
Furthermore, “[p]olitical fragmentation also reduces international cooperation on mitigating critical global risks such as climate change, pandemics, and cyber, increasing global exposures.” One of the most significant that comes out of these risks is natural catastrophes, as smaller economies cannot bear the financial burden alone. “Fragmentation would reduce the transfer of risk assessment, underwriting and risk mitigation know-how to smaller and less developed economies, limiting their capability to manage risk.” It will also widen already high consumer protection gaps, which have grown globally by 43% since 2013.