Tariffs on Canada and Mexico Could Raise Car Insurance Rates 60% Faster

Proposed tariffs on Canada and Mexico will likely change how much Americans pay for full-coverage car insurance. The U.S. leans heavily on its bordering neighbors for auto parts and assembly, and Insurify experts say a 25% tariff on imports will raise prices for parts, vehicles, and car insurance.

The Insurify data science team analyzed how the cost of vehicles and individual auto parts affect car insurance premiums to project how rates might rise with the proposed tariffs. Insurify projects that tariffs would contribute to the national average cost of full-coverage car insurance increasing 8% by the end of 2025, from $2,313 to $2,502.

Without tariffs, Insurify projected car insurance costs would increase by 5% year-over-year. The addition of tariffs would add an estimated three percentage points to that cost. In other words, rates would rise 60% faster with tariffs than they would without them.

Proposed tariffs on steel and aluminum could further increase prices for cars and auto parts. Mexico and Canada accounted for about 35% of U.S. steel imports in 2024.^[1] About half of U.S. aluminum imports come from Canada.^[2]

One-fifth of the cars and light trucks sold in the U.S. come from Canada and Mexico.^[3] Additionally, the U.S. imports roughly 32% of its total auto parts supply from Canada and Mexico, including certain components for which there’s no manufacturing in the U.S.^[4]

Individually, Mexico provided 43% of total U.S. auto parts imports between January and November 2024, according to Mexico’s National Auto Parts Industry (INA). The 25% tariffs would apply to those imports, with producers likely to raise prices to offset the additional cost. Eventually, those prices would affect auto insurance rates.

“As the price of replacement parts increases, premiums will have to increase accordingly,” said Daniel Lucas, carrier relations manager at Insurify.

Key Takeaways

• Tariffs could raise the projected average annual cost of car insurance in the U.S. by 8% in 2025, from $2,313 to $2,502. Insurify projects premiums will rise 60% faster with tariffs than without tariffs.

• Insurify estimates that tariffs would increase the average cost of auto repairs for U.S. drivers by 5%, based on the percentage of auto parts from Mexico and Canada.

• Tariffs would increase the average purchase price of a new car by $3,000, according to Wolfe Research. The average model costs $48,641, and that price would rise to $51,641 based on that analysis.

• Twelve popular car brands assemble models in Mexico. Audi, Ford, Mazda, and Nissan each have multiple models with more than 50% of the vehicle’s parts coming from Mexico.

• With tariffs, New York would see the annual cost of car insurance increase by $489 by the end of 2025, the most of any state, with $110 of the increase attributable to tariffs. Insurify projects the cost of full coverage would rise in each state after tariffs.

The average cost of full-coverage car insurance would rise to $2,502 with tariffs

The automotive industries of the U.S., Canada, and Mexico are highly integrated, with parts and vehicles frequently crossing borders during production. About $78 billion in auto parts came from Mexico and $20 billion from Canada in 2023, according to an Associated Press analysis of U.S. Census Bureau data. Tariffs would increase the price of those parts, which ultimately leads to higher car insurance premiums.

Before the U.S. announced potential tariffs, Insurify projected the annual cost of full-coverage car insurance would rise 5% by the end of 2025. The addition of tariffs would increase that by a further three percentage points to 8% due to the increased cost of cars and car parts.

Based on that 8% increase, the average driver paying for full coverage would spend $2,502 annually, a year-over-year increase of $189. Without the tariffs, that year-over-year increase would be $122, representing an additional increase of $67.

On a state-by-state basis, New York would see the highest nominal cost increase. The cost of annual coverage would increase by $489 by the end of the year, with $110 of that increase directly attributable to tariffs.

Without tariffs, Insurify projects that car insurance rates would decrease or remain flat in five states: Vermont, New Hampshire, Hawaii, New Mexico, and Idaho. With tariffs, however, rates would increase in every state, based on Insurify’s estimate of a national 3% overall increase.

Insurify based its projection for premium increases on estimates that the U.S. imports 32% of auto parts sold domestically from Canada and Mexico, that parts account for about 60% of a repair bill, and that the cost of covering vehicle damage makes up about 60% of the price of full-coverage car insurance.

How auto parts contribute to car insurance premiums

Full-coverage car insurance premiums include two main costs — liability coverage, and comprehensive and collision coverage.

Comprehensive and collision coverages pay to repair damages from covered events. The price of auto parts contributes to total repair costs. If auto part prices rise, insurers will pay more for repair claims and will ultimately pass those costs on to consumers through higher comprehensive and collision coverage rates.

Supporters of the tariffs say they will increase automakers’ willingness to buy U.S.-made auto parts and consumers’ willingness to buy vehicles assembled in the states. Automakers currently outsource some of that manufacturing, which lowers costs and makes their products more attractive to drivers. The tariffs would nullify those cost savings, potentially persuading more businesses and people to instead purchase parts and vehicles from companies that conduct more operations in the U.S.^[5]

Lucas said it would take time for manufacturing to move more toward the U.S. Manufacturers may hesitate to take on the cost of moving operations across borders when tariffs may not last.

For certain auto parts, no manufacturing capacity currently exists in the States. Wire harnesses, seat trims, and armrests used by American drivers are entirely made abroad, as they’re too expensive to make in the U.S., according to Wolfe Research, a New York-based financial research firm.

The up-front price increases on parts could also limit supply, further fueling price increases, as U.S.-based parts warehouses may choose to carry less stock on hand while waiting to see if tariffs last.

“All these factors can add to the cost of a claim — more expensive parts, lower domestic supply, and a longer supply chain that adds to rental costs, since vehicles take longer to repair,” Lucas said.

How tariffs will affect car prices

Generally, the more expensive a car is, the more expensive it is to insure. If implemented, tariffs on Mexico and Canada would increase the average cost of a car by $3,000, according to Wolfe Research. That figure takes two main costs into account:

• Light vehicle imports on vehicles assembled in Mexico and Canada

• Auto parts made in Mexico and Canada that are used in vehicles assembled in the U.S. Tariffs would affect each of those costs.

The average new car currently costs $48,641, so the added cost of tariffs would raise that price to an estimated $51,641.^[6]

To give a sense of scope, car manufacturers produce about 5.3 million vehicles in Canada and Mexico, with about 70% (nearly 4 million) intended for the U.S. market.^[3] More than one in five cars and light trucks sold in the United States were built in Canada or Mexico. In 2023, the U.S. imported $69 billion worth of cars and light trucks from Mexico and $37 billion from Canada.^[7]

Tariffs will hit these manufacturers hardest

Automakers have varying levels of reliance on Canadian and Mexican manufacturing. Ford and GM, for example, have made vehicles in Canada and Mexico for about 100 years.^{[8] [9]} GM stands to lose the most financially from tariffs but is better suited to handle rising costs than other automakers, such as Stellantis and Ford, according to Wolfe Research.

Tariff exposure by brand

The table below shows how much of those automakers’ operations are financially tied to Canada and Mexico and would see effects from tariffs.

Broken down by model, Audi, Ford, Mazda, and Nissan each have multiple models with more than 50% of the car’s manufacturing content coming from Mexico. About 75% of parts for the Nissan Sentra, which sold over 150,000 models in 2024, come from Mexico.^[10] Other popular models include the Nissan Versa (70%), Mazda 3 (65%), and Ford Bronco Sport (64%). Additionally, the automakers listed below have models that undergo final assembly in Mexico.^[11]

• Audi

• BMW

• Ford

• GM

• Honda

• Hyundai

• Kia

• Mazda

• Mercedes-Benz

• Nissan

• Toyota

• Volkswagen

When will drivers notice tariff-related increases in premiums?

Consumers will feel certain tariff-driven costs sooner than others. But auto insurers will have to manage the rising cost of repairs and claims before drivers do.

Auto insurers must request rate increases from regulators. They must provide proof that the cost of auto claims has risen enough to warrant a rate increase. Adding a layer of complexity is the fact that insurers must file rate increases and get approval at a state level, not a national level.

“It will take some time for that cost to work through the system,” Andrew Whitman, professor of finance at the University of Minnesota, told Insurify. “Insurance companies have to file for rate increases, and those rate increases have to be based on increased claim costs.”

Whitman said tariff costs aren’t a main factor in calculating insurance premiums but will play a role. He noted that competition for business among insurers could help limit the share of tariff costs that they eventually pass on to policyholders.

Drivers shouldn’t expect tariff-driven rate increases to affect their auto insurance premiums until the end of the year at the earliest, Lucas said.

What drivers need to know about tariff-driven price hikes

It’s not yet possible to project the full impact of the 25% tariffs on Mexico and Canada. Automakers and insurers aren’t sure what to expect but are bracing for higher costs.

“There’s uncertainty over whether these tariffs are going to stick. I think insurers are going to have a tough time … until there’s confidence these tariffs will be an ongoing phenomenon,” David Marlett, a professor of insurance at Appalachian State University who holds a doctorate in risk management and insurance, told Insurify. 

Consumers can take steps to prepare. Comparing auto rates among insurers can lower the chances of overpaying for coverage. Some policyholders might consider adjusting their existing coverage to prevent auto insurance costs from consuming more of their budget. Drivers can increase their comprehensive and collision deductibles to get a lower premium, but the trade-off is that they’ll pay a higher out-of-pocket cost before insurers cover a claim.

Additionally, consumers should be mindful of how reliant their car manufacturer is on goods that would be subjected to tariffs. For example, Whitman noted that tariffs could make the components used in electric vehicle (EV) batteries more expensive.

About 20%–25% of parts for Tesla vehicles come from Mexico, according to Wolfe Research, and tariffs on the country could raise costs by an estimated $1.6 billion annually. Additionally, Tesla may be targeted for additional retaliatory tariffs given CEO Elon Musk’s relationship with the White House, according to Wolfe Research.

Methodology

The projections in this article assume a 25% tariff — and subsequent price increase — for all vehicle parts imported to the U.S. from either Canada or Mexico. Insurify’s data scientists then calculated how this would impact car insurance rates by factoring in the proportion of all vehicle parts in the U.S. imported from Canada or Mexico, the share of typical vehicle repair costs represented by parts, and the proportion of a standard full-coverage car insurance policy that covers damages to one’s own or another’s vehicle. Insurify calculated tariffs’ effects on auto insurance prices on a national level and then equally distributed across states.

To calculate baseline prices, Insurify’s data scientists examined more than 97 million rates in the company’s proprietary database, quoted via integrations with over 120 insurance partners. Driver applications originate from all 50 states and Washington, D.C., and include information on the exact coverage specifications of each driver’s quoted policies. Insurify excluded Alaska data due to lower quoting volume.

The premiums in this report reflect the median insurance cost for drivers between the ages of 20 and 70 with clean driving records and average or better credit, unless otherwise noted. Yearly prices in this report are two-year rolling medians to manage extreme market volatility over the past few years.

For media inquiries or questions about our study, please contact the author here.