After months of speculation, on February 1, 2025, U.S. President Donald Trump signed off on 25% tariffs for all goods imported from Canada and Mexico, along with 10% on goods from China. But just two days later, he announced a 30-day pause on the Canada and Mexico tariffs to negotiate with both countries.
The ripple effects are still unfolding but already evident—especially for industries like automotive and construction—as the U.S. confirmed this week that the 25% across-the-board tariffs, including those on steel and aluminum, will indeed move forward.
Currently, the new tariffs on steel and aluminum are set to go into effect on March 12.
These tariffs include not just steel and aluminum imports, but also downstream products tied to car manufacturing and construction materials. And, for Canadians, there’s no exemption in sight.
US tariffs’ impact on Canadian auto insurance
Tariffs have a way of trickling down to prices we all pay. And in this case, your auto insurance could be affected.
“At a time when people are already feeling stretched financially, tariffs will in many cases increase claims costs and could have a corresponding adverse impact on insurance affordability,” writes IBC.
Read more: These are the top factors that influence your auto insurance rate
Increased costs for auto parts and repairs
Canada’s automotive industry and insurance ecosystem are deeply intertwined with the U.S. market. In 2024, the U.S. exported over $31.2 billion USD worth of passenger cars manufactured in Canada, and $19.5 billion USD of Canadian-made auto parts.
Given this close integration, tariffs on materials like steel and aluminum have far-reaching consequences. Auto parts, for example, often rely on metals like aluminum, which Canada supplies to the U.S. in large quantities.
Jean Simard, CEO of the Aluminum Association of Canada, highlighted this dependency to CTV News, noting that while the U.S. consumes five million tons of aluminum annually, it produces just 700,000 tons domestically. When the U.S. imposed a 10% tariff on Canadian aluminum back in 2018, demand didn’t drop—but costs definitely went up.
Higher vehicle prices
Trump’s proposed 25% tariff on Canadian-made vehicles could drive manufacturing costs up further. Greig Mordue, an advanced manufacturing policy expert, estimates that these tariffs could add $5 billion annually to costs to an automaker like Toyota, which makes upwards of 500,000 cars in Ontario.
In addition to the job losses to the Canadian economy due to reduced auto production, Canadian car buyers will likely feel this directly in the form of pricier vehicles, and - since newer, more expensive cars cost more to insure - higher premiums as well.
Rising repair costs lead to higher premiums – but not right away
The steel and aluminum that go into the auto parts and vehicles Canada exports, as well as those imported back into the country, are impacted by tariffs. Those rising costs may be reflected in higher repair and claims payouts.
Additionally, supply chain disruptions lead to longer repair times which can also increase costs like rental car fees or vehicle storage.
All of these elements combine to push insurance premiums even higher.
To stay financially viable, insurers adjust their premiums accordingly. This means Canadian drivers are not just paying more for their cars but also for the policies that protect them.
Insurance broker and RATESDOTCA expert, Daniel Ivans highlights recent factors that influenced rate increases, such as climate change, auto theft, and supply chain shortages.
For instance, we saw auto insurance for Canadian drivers go up when:
- Auto theft claims in Ontario increased significantly, with costs rising 524% between 2018 and 2023. This added approximately $130 to the average annual premium in the province.
- The cost of new passenger vehicles rose by 12.1%, and vehicle parts by 18% over the same period. These increases are reflected in higher premiums.
Inflation also plays a significant role in rising premiums.
“As costs like living expenses, labor, and insurance claims payouts increase due to inflation, insurers need to adjust premiums,” says Ivans. “However, these adjustments only happen once insurers demonstrate increased payouts, allowing them to make a case to Financial Services Regulatory Authority of Ontario (FSRAO) for higher premiums.”
That means that while rates are likely to increase eventually, it will take some time before these provincial regulators approve these changes.
“Insurers cannot request premium increases without first demonstrating claim frequency and the severity of payouts," adds Ivans.
Read more: Why your new car’s headlights costs $6,500 more than the old ones
Insurers may recoup costs in other ways
Auto insurance rate caps help slow down the immediate effect felt by insured drivers. The cap limits how much insurers can increase premiums annually, shielding consumers from sudden, steep hikes.
“Similar to challenges like climate change or auto theft, auto insurers often react to inflation 6 months to two years later. This delay occurs because they need time to assess trends and submit premium increase requests to FSRAO,” says Ivans.
However, there’s a caveat: Insurers often respond by limiting the types of coverage they offer or restricting the number of new policies, as they struggle to account for rising costs in a capped pricing framework.
For example, according to Ivans, in Alberta, insurers experienced financial losses during a rate freeze because they couldn’t collect enough premiums to cover payouts.
So, while insured drivers won’t be hit immediately, some drivers might have trouble getting access to certain coverages in the longer run. And, crucially, it doesn’t preclude rate hikes from happening in the future. After all, a rate cap only delays the inevitable. Once the cap is lifted or adjusted, consumers may face steeper increases to make up for the suppressed rates during the capped period.
Read more: Higher costs leading more Canadians to make changes to their driving
The tariffs’ influence on home insurance
While much has been made in headlines about auto manufacturing in Canada, home building and home insurance will also take a hit – and likely faster.
Home insurance is not regulated in Canada the same way that auto insurance is regulated.
"Insurers can adjust premiums quickly, citing increased costs and anticipated losses without needing approval unlike auto insurance,” says Ivans.
Meanwhile, tariffs on construction materials like steel, aluminum, and softwood lumber will inflate homebuilding and repair costs, and create a ripple effect in the home insurance space.
Escalating building costs
Even before the threat of tariffs, the housing sector was grappling with soaring material prices during the COVID-19 pandemic. Lumber costs saw unprecedented spikes and have yet to return to pre-pandemic levels. Now, with trade restrictions on steel and aluminum, another wave of price hikes looms on the horizon.
Steel and aluminum are essential in housing—from structural supports to roofing—and Canada’s trade relationship with the U.S. plays a vital role in their supply. Canada exports approximately $20 billion worth of these materials to the U.S. annually, making American demand critical for the industry.
When trade policies reduce this demand, domestic production slows, and prices rise as manufacturers pass on higher costs to Canadian buyers.
Related: Soaring lumber prices could make home insurance cost more
Higher insurance premiums
For insurers, construction costs are a key factor in determining home insurance premiums. Policies are often based on the cost to rebuild a home after damage caused by disasters like fires, floods, or earthquakes.
When the price of materials like steel, lumber, and aluminum increases, so does the cost of rebuilding as well. This forces insurers to re-evaluate their risks and, in turn, adjust premiums accordingly.
This issue is even more acute in areas vulnerable to natural disasters, such as British Columbia’s wildfire zones or flood-prone parts of Eastern Canada. Rebuilding in these regions already comes at a high price, and the added strain of rising material costs is further elevating premiums for homeowners.
Related: Are floods making your home uninsurable?
Extended repair times
Delays in procuring materials can also prolong construction timelines, which drive up costs for additional living expenses covered by insurance policies. For homeowners displaced by a flood or fire, these delays add frustration and additional financial strain.
Home insurance pricing can go up instantly
Since home insurance premiums are largely based on the cost to rebuild or repair homes after a disaster, higher material and labor costs directly lead to increased rates for policyholders.
Without regulatory approval, insurers adjust rates quickly to reflect rising costs from tariffs or supply chain issues, leading to faster and steeper increases for homeowners.
But Ivans does emphasize that, “insurers try to avoid steep and rash premium increases to retain customers and maintain trust. They prefer strategic and measured approaches to avoid panic among policyholders.”
The safest thing to do from an insurance perspective? For Ivans, it’s to “play the wait and see game.”
Related: How to lower home insurance rates by keeping your home in good shape
Looking ahead...
“Tariffs undermine and damage what has been a mutually beneficial and important trade relationship that has brought prosperity to both countries,” notes IBC.
While the exact timing and extent of the tariffs’ impact on auto and home premiums remain uncertain, staying informed is essential for consumers.
Compare rates, opt for comprehensive coverage, and consult your insurance broker to review your policy—identifying what needs updating or what might be adjusted.
Read next: Ask the expert: How Trump’s tariffs will affect your Canadian mortgage
Don't waste time calling around for auto insurance
Use RATESDOTCA to shop around, and compare multiple quotes at the same time.
