How tariffs are creating smaller business interruption claims payouts

As the U.S. trade war drags down local and global economies, adjusters may notice some business interruption (BI) claims payouts are smaller than they otherwise would have been, experts at the Canadian Independent Adjusters’ Association (CIAA) Canadian Claims Summit said on Oct. 3.  

A weaker economy partly caused by tariffs can lead to lower BI losses overall, said Boris Antonic, principal of forensics at Williams Meaden & Moore Inc. 

“A business interruption loss might actually be lower than it would be if tariffs weren’t there,” he said during a panel discussion on tariffs and trade barriers. “[When] you have an upward trend for sales, a loss is going to be bigger when a business is shut down for a longer time period.

“Well, now you have a little bit of a trend the other way. Businesses in today’s economy may not actually be as healthy as they would be without the tariffs.” 

As tariffs increase the price for materials — thereby indirectly reducing buyer demand — some businesses may be experiencing weaker sales or an economic downturn before a loss occurs. 

Since insurers base BI payouts on what the business would have earned in the current market conditions, lower projected revenues would reduce the size of the business interruption claim. 

Why innovative customer experience will define the future of personal auto insurance Image

Insights Paid Content

Why innovative customer experience will define the future of personal auto insurance

Technology is helping insurers reimagine how they support personal auto customers — and it starts the moment a collision is reported, say experts at Accident Support Services International.

By 

Sponsor Image

Insurers usually rely on historical data to predict loss payouts. But the data may be unreliable in a volatile economic environment, Antonic said. 

“What would have happened ‘but for’ the loss? Predicting that is becoming a challenging task,” he said. 

“What we do is we try to find as good information as we can, look at the historicals, and we try to come up with some kind of a decent estimate. But at the end of the day, once we learn more information, we might have to revise it and update it and continually keep updating it. So the best thing to do is wait and see what happens.” 

As the tariff war drags on, trade policies implemented earlier in the year might now offer some benchmarking opportunities for claims professionals, though making future predictions based on historical info remains difficult. 

“If you have a loss that happened five months ago — which is in the middle of the tariff environment — there might be some comparatives and benchmarks and information that you can use to actually assess what a loss is,” Antonic said.  

“But if you’re looking into the future, furniture tariffs for softwood were just mentioned last week,” he said. “So, if you have a loss now for a furniture manufacturer who is selling a lot to the U.S., how do we reserve the next year? They might go bankrupt as a result of these tariffs.” 

Alyssa DiSabatino

Alyssa Di Sabatino has been a reporter for Canadian Underwriter since 2021, covering industry trends, market developments, and emerging risks.