Global trade policies have effects across many groups of people in the international commerce world, like exporters and multinational corporations. Not just that, but they impact businesses of all sizes, including those here in Southern California. Since the beginning of 2025, one of the most under-discussed factors reshaping the cost of doing business is, in fact, tariffs. These government-imposed taxes on imports are driving up the price of raw materials, parts, and finished goods. In the same way, they are also quietly raising the cost of commercial insurance.
What Are Tariffs, and Why Do They Matter to Businesses?
Tariffs are essentially taxes applied to goods imported from other countries. Governments often use them to encourage domestic manufacturing, retaliate against foreign trade policies, and protect national industries. While tariffs may serve strategic purposes, they also increase the cost of materials and components for U.S. businesses that rely on global supply chains. For example:
A construction company may pay more for imported steel
A retail brand may face higher costs on imported electronics or packaging
A logistics company may experience delays due to international trade tensions
All of these ripple effects translate into heightened business risk, and that’s where commercial insurance costs start climbing.
How Tariffs Impact Commercial Insurance in California
Tariffs indirectly but significantly affect several key areas of business insurance:
1. Higher Premiums for Commercial Property and Auto Insurance
Increased costs for raw materials like lumber, steel, and imported machinery mean higher repair and replacement costs. If your business suffers property damage or vehicle loss, insurers now face larger potential payouts, so they adjust by increasing your premiums.
Example: If your warehouse is damaged in a fire and rebuilding now costs 15% more due to tariff-inflated steel prices, your insurer bears a bigger loss. To offset this risk, insurers may tighten underwriting standards and raise commercial property rates.
2. Supply Chain Disruption and Business Interruption Insurance
Tariffs can disrupt supply chains by limiting access to critical parts or creating bottlenecks in global production. These disruptions increase the likelihood of business interruption, a coverage that compensates for income loss during unexpected downtime.
Example: If your manufacturer in Asia cannot ship parts due to trade restrictions and your business must halt operations, your business interruption insurance could be activated, assuming you have the right endorsements.
Insurers are now evaluating global dependencies when pricing this coverage. Businesses that rely heavily on international imports may face higher premiums or new exclusions.
Retirement plans can also be a Significant factor. Companies that provide generous 401(k) matching or pension plans demonstrate an investment in their talent over the long term. Being up front about vesting schedules and contribution limits fosters trust and strengthens the company’s reliability.
3. Escalating Claims and Under-insurance Risks
Higher material and labor costs mean larger claim payouts. If your policy has not been updated to reflect current replacement costs, you could be under insured and left exposed.
Example: An outdated policy may only cover $100,000 of damage to a facility that now costs $140,000 to rebuild. That $40,000 shortfall would come out of your pocket.
How Arroyo Insurance South Bay Helps Clients Respond
We understand how shifting global trade policies affect your bottom line. Arroyo offers several services and risk management solutions tailored to this evolving environment:
Policy Reviews for Inflation and Tariff Exposure
We will review your existing commercial property and equipment coverage to ensure you are not under insured in today’s higher-cost climate.
Business Interruption Coverage Audits
We evaluate whether your coverage accounts for modern supply chain delays, especially for manufacturers and logistics-based businesses.
Supply Chain Risk Assessments
We help document tariff-related risks in your supply chain so they can be addressed in your insurance strategy.
Specialized Coverage Options
We offer trade credit insurance, inland marine coverage, and endorsements for supply chain interruption.
Risk Mitigation Strategies: What Business Owners Should Be Doing Now
Being proactive is your best defense against rising insurance costs caused by global trade shifts. Here is what we recommend:
Diversify Your Supply Chain
Consider sourcing from multiple countries or exploring nearshoring options to reduce your dependence on tariff-heavy imports.
Re-Evaluate Coverage Limits
Inflation and material costs are up. Update your coverage to reflect current rebuild and replacement values.
Improve Documentation
Show underwriters you have taken action. Document efforts to diversify suppliers, strengthen infrastructure, and manage risks.
Include Tariff Clauses in Contracts
Work with legal professionals to include cost-sharing terms in your vendor agreements. This can reduce financial pressure from future tariff changes.
Partner With a Local Expert
Arroyo Insurance South Bay understands both regional and global risk factors. We tailor solutions to keep you covered no matter the market climate.
Industries in Southern California Most Affected
Arroyo works closely with businesses that face direct tariff exposure. These include:
Importers and Exporters:Especially those handling electronics, textiles, or auto parts
Construction Companies: Impacted by rising material costs
Retailers and Wholesalers: Facing increases on imported inventory
Logistics and Freight Services: Affected by supply chain delays and higher fuel costs
Manufacturers and Assemblers: Relying on overseas equipment or components
Each industry has unique exposures, and we are ready to help assess and manage yours.
Final Thoughts: Navigate Tariff Risks with a Strong Insurance Strategy
Tariffs might not be in your control, but your risk management plan is. From higher insurance premiums to supply chain vulnerabilities, the effects of tariffs are real for California businesses. Updating your coverage, understanding your exposure, and working with experts who can support you makes a critical difference.
At Arroyo Insurance South Bay, we specialize in helping local businesses stay protected in an unpredictable global economy. If you are unsure whether your current insurance reflects today’s realities, now is the time to act. Contact us today for custom guidance built for 2025 and beyond.
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