Actuarial group Finity has urged Australian insurers to recognise long-term supply chain impacts and market challenges stemming from the changing global trade environment.  

An article by principals Jiao Wang and Rade Musulin says recent shifts in trade policy marked by US President Donald Trump’s tariff regime are bound to affect several sectors, plus reinsurance costs.  

It highlights challenges for car insurance amid tariff volatility and supply chain difficulties that could lead to higher costs over the medium to long term.  

“Australian auto repair businesses currently maintaining average net profit margins of 10%-20% are already under pressure from rising labour costs due to skilled labour shortages,” the pair write.

“Adding supply chain disruption and volatile parts pricing creates a compound effect that will inevitably impact insurance claim costs.”  

Construction is also likely to be affected, and Finity warns the industry’s insolvency issue could worsen as material costs and insurance rates rise.  

The article also highlights exchange rate fluctuations’ impact on reinsurance costs, rising business interruption claims due to supply chain issues, and exposures to investment portfolios.  

“What makes the current situation particularly challenging is not just the tariffs themselves, but the unpredictable nature of their implementation and the uncertainty around trade relations, in particular between the top two economies in the world – US and China,” it writes.  

“This volatility makes traditional forecasting methods increasingly inaccurate and unreliable, requiring insurers to adopt more sophisticated approaches to risk assessment.”  

Finity says insurers should assess their readiness for long-term economic impacts.  

It recommends they enhance their monitoring of economic markets, install dynamic pricing mechanisms to allow for quick adaptability, deepen relationships with supply partners, and have robust stress testing and scenario planning based on varying trade outcomes.