Mixed Bag: What Trump 2.0 Tariffs, DOGE Activities Mean For Insurers

Echoing these comments is Jerry Theodorou, director of the finance, insurance and trade program at R Street Institute, a U.S.-based center-right think tank. “If reintroduced as Trump plans with a lower corporate tax rate that is likely to pass because of the Republican majorities, it will go to the bottom lines of insurance companies and that’s good…”

Automakers are a case in point. Higher tariffs will drive up the cost of car components and materials, resulting in more expensive repairs that are passed on to insurers and ultimately the policyholder.

“Automobile parts imported from Mexico account for 38 percent of such parts sold in this country, whereas automobile parts from China sold here have fluctuated between 10 percent and 25 percent,” said Theodorou. “Trump contends that U.S. companies will simply retool and make these parts domestically, offsetting the inflationary impact. It will take years for that to happen…”

If higher tariffs are imposed as expected, Theodorou said it will reverse positive trends in private passenger automobile insurance premiums, which have fallen through the third quarter of this year by 11 percentage points, he said. “Just when things were getting better, the higher cost of car repairs will drive rates higher. When repair costs go up, insurer loss costs go up, driving up insurance premiums…”

Project 2025 also calls for privatizing FEMA’s National Flood Insurance Program (NFIP), a federal agency drowning in debt that continually seeks Congressional subsidies. “With all its problems, the NFIP is a relatively complex program with layers of reinsurance that has recently improved with the implementation of a new flood risk rating methodology,” said Theodorou.

The new risk methodology, called Risk Rating 2.0, considers a broader range of flood risk data, including pluvial risks, intense bursts of rainfall that cause flooding in cities and other urban environments, and a building’s replacement costs. “Why kill it now and what will replace it?” said Theodorou. “The insurance market isn’t going to replace it…”

One government entity likely to survive the DOGE scalpel is the Federal Insurance Office (FIO), if for no other reason its meager size. “FIO has 13 full-time employees and Homeland Security has 260,000,” said Theodorou. “If Ramaswamy and Musk are trying to cut fat out of the government, it would be laughable if they went after an agency with a dozen people [that’s] been described as toothless because it monitors the industry and doesn’t regulate it…”

“Will Trump support tort reform? The answer is no,” said Theodorou. “The next administration and the Republican Party have gone populist and favor the trial bar. Mr. Trump in his personal capacity has filed about 4,000 lawsuits, so I don’t think he’s about to celebrate tort reform…”

Even without tort reform, the industry should be in fine shape in Trump 2.0, despite concerns to the contrary. “I’m continually told by consumer advocates that the industry’s losses are so big, insurance companies will roll up their tents and leave certain states, but Wall Street begs to differ,” said Theodorou. “During the first Trump Administration, insurance stocks in the S&P property/casualty specialty stock index went up by 40 percent. During the Biden Administration now ending, insurance stocks went up 91 percent. Wall Street has confidence in the insurance industry’s ability to survive and thrive, no matter who runs the country.”