Will Tariffs Make Car Insurance More Expensive?

With widespread reciprocal trade tariffs on American goods entering Canada, car buyers are suddenly altering their affordability equations, from how much they could afford pre-tariffs to how much they can afford today. So, while both the United States and Canadian governments argue that these taxes on international transactions are necessary to protect their domestic economies, consumers who have been hit with rising prices in all areas of their lives may now see increases in not only the prices of new and used vehicles but also operating costs, like car insurance.

We are still in the early days of this situation. The specifics of the tariffs in the auto industry may change as we move ahead in what is a very fluid situation. But whatever the result, from the raw materials (like steel, aluminum and battery components) to specialized parts, these new trade levies will play a large part in all aspects of car ownership, including when cars must be repaired due to collisions or replaced when stolen.

Here's a breakdown of the potential changes in car insurance costs as the tariff issue continues.

Before these tariffs arrived, many Canadians had already paid much more for car insurance over the past few years. Like transportation, food, and shelter costs, automobile insurance is not immune to inflationary consumer prices, which averaged 2.2 per cent annually in the decade before 2022 compared to 6.8 per cent in 2022 alone. 

As automotive insurance companies adjust their rates to cover future claims, they must stay in line with increasingly higher parts and labour costs associated with modern vehicles and their more sophisticated technologies. The costs of insurance claim appraisals, labour, towing services, and rental cars also need to be factored into the rise in insurance costs over the past few years. 

Source: Getty

A slowing economy overall also impacts the insurance industry. Coverage costs increase to match claims caused by increased stolen cars and fraud from staged collisions involving exaggerated injury claims or false property theft, all of which need to be considered. 

Add up all these rising costs, and it's no surprise that auto insurance premiums in Canada increased just over 12 per cent between 2023 and 2024.

If the tariffs continue, we will likely see an increase in the cost of operating our cars, not just insurance.

First, tariffs will immediately increase the cost of importing and assembling vehicles, causing the retail prices of new and used cars to rise. As insurance companies tie their payouts to vehicle values, this will lead to higher premiums. 

Next, many auto parts are imported from the U.S. and China into Canada. If tariffs make these parts more expensive, repair costs will go up, triggering insurers to raise rates for collision insurance and other liability coverages. 

Finally, insurers expect more total loss claims, which happen when the repair costs of a damaged vehicle exceed its value, again, increasing premiums.

How to Prepare for Higher Insurance Costs

Unless we see a rapid reversal of the current trade policy or some other unforeseen economic event, the answer to "Will tariffs make car insurance more expensive?" is leaning heavily to a strong "yes." However, you can prepare for this inevitability in a few ways.

If tariffs immediately impact vehicle prices, plus maintenance and repair costs, your insurance premiums may not increase as quickly. Insurance companies must apply to provincial regulators to apply any rate changes. This usually happens after the claims costs have risen above the insurers' operating costs. In the meantime, here are some steps you can take to deal with your car's insurance costs.

Review your car policy: Now's the time to see if your current car insurance policy meets your needs, as eliminating any unnecessary coverage can lower the premium. For example, do you need comprehensive or collision car insurance coverage if you own an older or classic car? Do any family members no longer need coverage? Are you driving less than before?

Does your insurer offer any discounts?: Depending on the policy, many insurers offer a discount menu. These can include savings if you have a clean driving record, bundle your home and auto insurance, or install anti-theft devices.

Drive a More Affordable Vehicle: Unsurprisingly, car insurance costs align with the vehicle's value. The more expensive the car is, the more expensive it will be to repair and replace it. If you are at a point where you can switch out your vehicle for a less costly new or used car, double down and consider a make or model with lower repair costs and better safety ratings.

Increase Your Deductible: Many insurers will allow you to choose higher deductibles (the amount of money a policyholder agrees to pay out-of-pocket before their coverage covers the rest of a claim) for comprehensive and collision coverage. While you'll have to pay more out-of-pocket if you file a claim, you'll pay less for your insurance premium.

Review the Limited Waiver of Depreciation: This optional add-on ensures that if your car is stolen or damaged in a collision to the extent that you must make a total loss claim, your insurer will match the amount you initially bought your car for, not the depreciated amount. Because of the sharp increase in car prices in the past few years, it is important to check if you bought your car recently. Depending on the outcome of the tariffs, the cost of an equivalent replacement car could be much more expensive than originally projected only a few years ago.