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There are a lot of implications to think over with President Donald Trump’s tariffs program.
The most immediate impact, of course, is that imports get more expensive. Suppliers often pass the added costs on to customers further down the supply chain. The tariffs could also impede M&A activity, as we previously reported. Goldman Sachs even recently increased the probability of a recession to 35% as a consequence of tariffs.
Here’s one other thing that tariff-anxious CFOs might want to think about: Their organizations could now be underinsured.
On the eve of so-called Liberation Day—the day Trump’s “reciprocal” tariffs are slated to go into effect—we spoke with Brett Hoopingarner, director of underwriting at mutual insurance company Sentry, about the insurance implications of tariffs.
Hoopingarner said the roughly 12,000 customers in Sentry’s direct writing business unit include metalworkers, manufacturers, distributors, car dealers, and heavy equipment dealers. In other words, Sentry customers definitely feel the effects of reciprocal tariffs.
This interview has been edited for length and clarity.
How will your customers be impacted by tariffs?
As we sit here on April 1, there’s still uncertainty to the degree that the tariffs will impact our customers, but there’s no doubt if you have 25% tariffs impacting imported goods, cost of materials, vehicles, property, it’s going to have an impact. So what our focus is right now with our customers is looking at, what can you do as a business to prepare for that uncertainty?
One main thing that I would recommend for our customers…or any business out there right now, [including] manufacturing [and] dealerships, is you have to have a very good formal process for valuing your property limits. And that would be for your buildings, that would be for your business personal property.
There’s a risk in making sure that you have proper limits of insurance, to make sure your property’s covered at the time of loss. The risk goes up with the introduction of tariffs.
What can organizations do with insurance policies to protect against the added risk from tariffs?
Pretty much most property policies will offer [an inflation guard provision]. And that inflation guard is a percentage that can be selected; you can go as low as, generally, 2% all the way up to 30% for our Sentry customers. Then that will get applied throughout the entire 12-month policy period. Let’s say you select 15%. Now you have up to 15% inflation guard added onto the limits you had selected at that time.
What can an insured organization do if it doesn’t have that provision?
Be proactive; ask for a meeting with your insurance carrier or broker, and do a full evaluation of what you now deem the post-tariff cost is going to be to your property—whether that be your buildings, whether that be your personal property…I think that’s the most proactive thing you can do, and you cannot wait until that next renewal to do that, with the potential impact of tariffs.
Is that also a problem for companies that have more items on hand than normal to avoid tariffs?
If we do have businesses that now try to stockpile inventories, that should be reflected in real time, meaning you should be looking at your limits more often than you would [and] not waiting that 12 months. If you know you’ve purchased more inventory, then your personal property limits should reflect that…Certain property policies have another provision that can be built in or chosen, which is a seasonal increase [of inventories]. And that’s not something new, but I think it becomes more of a factor today for businesses if they choose to stockpile their inventories.
What other words of advice are you giving to organizations?
Probably my number one piece of advice would be, we’re now in an environment that’s changing rapidly. There’s going to be uncertainty with that. But the certainty is, a customer needs to review the limits of insurance they have across property, auto, all of their lines of business. Don’t wait the normal cadence in a normal environment, where 12 months may make sense. Do that now. And then, look at things like an inflation guard provision that can mitigate the risk as much as possible that we know these tariffs are going to have on the cost of materials, buildings, [and] automobiles.