Policyholder Pulse
Since President Trump took office on January 20, 2025, the administration has implemented significant changes to U.S. trade policy, including most notably with respect to tariffs. Within weeks of taking office, the White House announced changes to tariffs on steel and aluminum which placed a tariff of 25% on all such imports. New tariffs were also separately imposed on imports from Canada, Mexico and China subject to certain exceptions. Then, on April 2, President Trump announced “reciprocal” tariffs on most imports from most countries, branding the day as “Liberation Day” and one of “American industry rebirth.” These tariffs, which include a 10% baseline rate and higher specific tariffs targeting China, Vietnam and the EU, among others, prompted heightened concerns about a trade war. Then, on April 9, President Trump announced that although the 10% baseline reciprocal tariff will remain effect, the higher reciprocal tariffs will be postponed for 90 days—except for China, for which the reciprocal tariff and duties are being increased to 105%, which are being applied in addition to prior 20% duties and the Section 301 duties.
These changes are already having economic impacts. For example, over the past two months construction projects have been experiencing an increase in delays and price overruns due to the tariffs on steel and aluminum. Then, with the announcement of the reciprocal tariffs in early April, global markets sold off strongly with major indices and commodities down over 10%. However, with the April 9 announcement that higher reciprocal tariffs would be paused, markets rallied. Further disruptions and losses are widely expected.
The shifting political climate and the potential for significant trade-related losses may cause companies to consider whether their insurance policies may mitigate the financial impact.
Types of Insurance Coverage That May Apply
Several types of business insurance may potentially cover losses related to tariffs, depending on the specific circumstances. The following highlights a few of the more common possibilities.
1. Property, Stock Throughput, Ocean/Inland Marine & Builder’s Risk Insurance
These policies typically provide coverage for physical loss or damage to various types of property. Many also provide coverage for economic losses (extra expense and income losses) resulting from a covered event. While tariffs alone may not cause physical loss or damage, trade-related disruption could. Shipping delays could, for example, cause perishable products to be damaged in transit, leave sensitive property or equipment exposed to the elements during ongoing construction projects, or exacerbate economic losses from a fire or some other event that is unrelated to trade. As another example, global anger over the changes in the U.S. trade policy could result in events such as sabotage, arson, riots or theft, which are risks that can give rise to large losses covered under these policies.
Further, there are instances in which the language in these policies might extend to non-physical losses. This could include losses caused by government actions. For example, if a business experiences a significant slowdown due to the imposition of tariffs that increase the cost of goods, causing a halt or reduction in operations, coverage may apply. However, this will depend on the wording of the policy, which may require specific triggers or events such as an act of government (e.g., the imposition of tariffs) for coverage to be triggered.
2. Trade Credit Insurance
Trade credit insurance helps protect businesses from losses resulting from the inability of customers to pay for goods or services, often due to economic factors or external disruptions. If a business is selling goods to international buyers and those buyers are unable to pay due to tariff-related price increases or other disruptions, trade credit insurance could potentially provide coverage for these losses.
This type of insurance can be particularly relevant for businesses involved in international trade that rely on customers abroad. If the tariffs lead to a sudden loss in market demand or an increase in buyer defaults, trade credit insurance could mitigate some of the financial risks.
3. Political Risk Insurance
Businesses operating internationally may also consider whether losses resulting from the recent trade policy shifts may be covered under their political risk insurance policies. Political risk insurance provides coverage against losses arising from enumerated adverse political events, including, for example, expropriation, forced divestiture, currency inconvertibility, license cancellation/revocation, political violence, and contract frustration due to political decisions.
While political risk insurance is most frequently associated with adverse political events happening in developing economies, an escalating trade war could lead to circumstances where a government in a major, developed economy takes action that triggers the coverage. This could be, for example, the revocation of a company’s license to operate in-country, trade embargoes, or the forced divestiture of a local subsidiary by its multinational parent.
4. Subcontractor Default Insurance/Surety Bonds
Due to the earlier imposition of the tariffs on steel and aluminum, the construction industry has experienced trade-related impacts earlier than many other industries. Trade-related delays and cost overruns on construction projects can significantly impact timelines, budgets, and contractual obligations, potentially triggering protective mechanisms such as subcontractor default insurance or a surety bond. Subcontractor default insurance is a risk management tool that provides coverage to general contractors when a subcontractor fails to perform or meet its obligations. Cost overruns or prolonged delays may signal an underlying financial or operational issue with a subcontractor, prompting the general contractor to file a claim under the SDI policy to recoup costs associated with replacing the subcontractor, accelerating the schedule, or mitigating the disruption.
Similarly, surety bonds—typically performance bonds, which are most frequently found in government projects—serve as a financial guarantee that a subcontractor will fulfill its contractual duties. If delays and cost overruns lead to the subcontractor’s failure to perform or meet milestones, the project owner or general contractor may declare a default and call on the surety to intervene. The surety may then provide funds to complete the work, hire a replacement, or reimburse the obligee, depending on the bond terms.
5. D&O Insurance
The tariff-related market turmoil seen in early-April 2025 has resulted in large losses, with the current estimates running between $5 and $10 trillion in total market losses. Since securities and derivative lawsuits frequently follow large decreases in stock prices, it is likely that at least some companies will be targeted for having allegedly failed to adequately disclose their exposure to trade-related market impacts. Directors’ and officers’ policies, including separate Side-A towers, should provide coverage for the defense costs and other losses associated with any such suits.
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