I wrote a post in late July asking the question, “Can Tariffs Impact Car Insurance Rates (see https://wiseinsurancegroup.com/can-tariffs-impact-car-insurance-rates/)?” I’ve begun to wonder how will tariffs impact home insurance rates since then. This question was partly fueled by an Associated Press article which appeared in the August 12th issue of The Dallas Morning News.
The AP article introduced two interesting points relating to victims of the California wildfires, which had destroyed 1,200 homes as of the date the article was written. The points were:
- Material costs could escalate as much as $20,000 a home due to the tariffs.
- Homeowners could find themselves under insured due to the higher material costs
Many of the homes built in California, Texas and elsewhere use materials that come from other countries including nails, drywall, and wise mesh from China and other countries, as well as lumber from Canada. If President Trump’s tariffs remain in place, the cost for all these materials will increase as the tariffs on Canadian lumber is 20% and 25% on steel from various countries along with many goods from China. One-third of all softwood lumber is imported from other countries with most of it coming from Canada.
If the cost of car parts increases dramatically, then it makes sense car insurers will raise rates to cover the cost of parts from other countries as was pointed out in the Insurance Journal article my post was based on. I believe the same line of thought applies to the cost of home insurance, though not to the same degree. The reason being is that there is usually a much lower percentage of homeowners who’ll experience a total loss as the victims of California’s wildfires have experienced.
I believe the bigger concern for many homeowners is that they may find themselves under insured should they be faced with a significant or total loss. Most Texas home insurance policies from the major carriers include an inflation protection clause in their policy which is designed to adjust the amount of coverage on a person’s home based on the annual inflation rate.
The purpose of this coverage is to prevent a home from becoming underinsured over time. The usual rate of inflation is somewhere around 3% to 5% annually, not the 20% to 25% increases in material cost based on governmental created tariffs. I do believe home insurance rates will rise to help cover some of the material price increases and very likely insurance companies will adjust policy holder’s dwelling coverage amounts based on tariff adjustments to materials if they are long lived. What do you think? Share your comments, questions, and questions with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!