Have Tariffs Left Your Clients Underinsured?
Nicholas M. Insua and Richard P. Lewis, partners at law firm Reed Smith, LLP, raise an interesting point in a post published last month:
“The bigger issues related to how tariffs may affect replacement cost are (1) whether policyholders have purchased sufficient limits and (2) the premium to be charged for policies promising replacement cost. These issues have arisen in various areas of the United States over the past few years driven simply by generalized labor and materials shortages. There are, for instance, a number of articles discussing policyholders being surprised that the replacement cost of their property exceeds the market value (which is atypical, because market value includes the value of land).
Accordingly, while first party policies metering recovery by replacement cost will include cost spikes driven by tariffs, policyholders should be sure that they have adequate limits to cover those spikes and be prepared to pay more for replacement cost property insurance.”
I confess that, while I’ve been concerned about the effects of tariffs on the cost of auto repair, I was oblivious to the implications for Homeowners and Commercial Property insurance. It makes sense – if certain construction supplies come from a certain country, and imports from that country now incur a 10% tariff, construction costs will increase accordingly. That means a house or apartment building that may have carried a sufficient limit a year ago no longer does, even if nothing else changed.
Raising this issue with your clients might be a good idea. Some of them may ask you to obtain new replacement cost estimates and purchase higher insurance limits. If tariffs have left them underinsured, it’s better to find out before a loss when something can still be done about it.
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