How Tariffs Are Impacting Small Business Insurance

The current wave of US tariffs on imported goods are making headlines mostly for geopolitical reasons, but the impact they’ll have on small businesses is quite alarming. Increased expenses, interrupted supply chains, and new uncertain partnerships are affecting both the day-to-day operations as well as long term planning. However, one area that’s often overlooked, is how these tariffs directly influence the needs and cost of insurance for small businesses. 

From increased premiums, to new liability risks, there are a variety of ways that business coverage will be affected. To help you plan for the everchanging landscape, we’re exploring the impact that these tariffs have on small companies in terms of operational costs, risks and how it all trickles down to the insurance coverage you use to protect your employees and assets. 

How Do Tariffs Impact Small Business Profit Margins? 

Tariffs are simply defined as taxes on imported products, goods or materials. In essence, when a tariff is imposed or increased, the prices of the goods and materials sourced from overseas also go up. While large corporations that regularly purchase high quantities of materials overseas, tend to have negotiating power or can simply absorb the spike in costs, small businesses don’t have the same luxury.  

Here are some of the ways that tariffs are hitting small businesses the hardest: 

• Higher Material Costs: When tariffs raise the costs of goods like textiles, electronics and other raw materials, small businesses are forced to either absorb the expense or raise their prices, both of which negatively affect profit margins. 

• Disruption in Cash Flow: As costs rise, the necessity to cut spending in areas such as new hires, marketing initiatives, or even fixed expenses increases, which can stall growth. 

• Supply Chain Disruptions: Switching to new international or domestic suppliers can lead to unforeseen disruptions like delays, quality inconsistencies and new liabilities, all of which must be considered. 

The Ripple Effect on Insurance 

While the impact on insurance for small businesses may not initially come to mind when thinking about the newly established tariffs, the effects are real. Let’s take a look.

Employee Health Insurance and Benefits

With tariffs and operating costs now on the rise, small business owners are faced with tough financial decisions, but employee benefits don’t have to be one of them. Even with a tight budget, there are a variety of ways to maintain your team’s wellness benefits without breaking the bank. 

Consider the following strategies:

• Explore More Affordable Plans: Take a look at multiple types of group health plans, and find one that’s more cost-effective. For example, switching from a comprehensive PPO plan to an HDHP (high deductible health plan), reduces monthly premiums while still providing essential coverage. HDHPs in particular work well when paired with HSAs (Health Savings Accounts) to help employees manage their out-of-pocket costs. This is just one example, but there are a variety of affordable plan options that enable companies on a budget to still offer competitive benefits. 

• Prioritize Core Benefits: Another way to reduce costs without sacrificing value is by focusing on keeping your current health insurance plan, and temporarily scaling back supplemental coverages like dental, vision and life insurance. While this may not be ideal, you can always revisit these add-on protections once company finances are more stable. 

• Share Costs Transparently: Instead of eliminating health coverage, a great option is to simply adjust the percentage of employee premium costs that you cover. When making adjustments to your coverage contributions, it’s important to be transparent with your team, and provide support so they can make the most of their insurance plan. 

Property and Equipment Insurance

Businesses with expensive or essential equipment generally purchase polices to protect their assets. These insurance policies are based on the value of the assets at hand and this value is determined at the time the policy is purchased. When tariffs begin to increase the cost of imported materials or equipment, the replacement cost also increases. So what does this ultimately mean? It means that the current policy that you purchased way back when, might fall short, and not properly cover your assets. 

Example: Let’s say you purchase a piece of equipment that’s vital to your operation from an overseas manufacturer. At the point of purchase it cost $10,000 but now with tariffs in play it would now cost roughly $14,000. If the piece of equipment breaks down, is destroyed or stolen, your current small business insurance policy likely won’t cover the entire replacement cost. This means you’ll have to pay for the rest of it out of pocket. 

To avoid these types of situations, it’s crucial to perform regular audits on your insurance policies and the current value of your assets. When doing so, make sure to consider inflation or get an updated appraisal to get the most accurate figures. 

Product Liability Insurance

For companies manufacturing or distributing goods, tariffs may cause you to start working with a new supplier. Working with new partners always brings the risk of delays and product defects, especially if they are a lesser known company. This brings in the need for adjustments to your product liability insurance policy. 

While there may have been no concerns in the past, changes in supply chain may cause claims related to unsafe or faulty products. To avoid these situations, it’s important to evaluate both your current policy and the quality of the products from the new supplier. If warranted, the best solution might be adjusting your policy limits. 

Cargo and Transit Coverage

Adjustments made to suppliers, means changes to shipping methods, carriers and delivery routes. In order to avoid the risks that come with these changes, it’s important to review your current policies and stay protected. Here are some specific insurance types worth re-evaluating: 

• Marine Cargo Insurance: Ensure that your policy is updated to include the increased value of specific goods or materials being transported. Additionally, be sure that your policy sufficiently covers any new international routes being taken

• Inland Transit Coverage: New suppliers may also affect the delivery routes taken within the United States. That’s why it’s important to review your inland transit coverage policy, making sure that it provides coverage for additional or longer routes, which increase the risk of losses. 

• Third-Party Logistics (3PL) Liability: If you find yourself needing to use a new fulfillment or freighting partner, be sure that your insurance policy is updated to reflect any added risks tied to the partner at hand. 

Four Actionable Steps to Protect Your Small Business

While tariffs set in stone may be out of your control, there are ways that you can affect the impact they have on your business. We’re talking about your insurance strategy. By exploring the following four steps, you can ensure that your business remains protected, risks are limited and you’re not overpaying for coverage.

1) Audit All of Your Insurance Policies: Evaluate your current business insurance policies. Make sure that the current limits are in line with the updated value of your assets and reflect the rising costs to replace them. Pay particular attention to commercial property, business interruption and transit coverage, as they are affected the most by supply-chain changes. 

2) Compare Plans to Save Money: Don’t simply cut insurance coverage altogether, because you might just be overpaying on your current policy. Instead, use an insurance comparison tool like EZ.Insure, where you can evaluate competing plans side-by-side, and receive free custom quotes for all of your small business coverage needs. Businesses that compare plans before purchasing many times reduce their premiums while keeping the same or even improving their coverage. 

3) Inform Your Employees of Changes: If you need to make changes to your existing group benefits plan, be sure to keep your employees informed. It’s important to not only explain to them the changes at hand and why they were made, but also be sure to provide them with resources to help them understand what’s available. 

4) Explore Domestic Suppliers: You may be able to lower the impact of tariffs by working with a domestic supplier or partner. Keep in mind that all suppliers and logistic partners have different associated procedures and exposures, so be sure to update your insurance policies to reflect any new risks. 

Final Thoughts: Stay Proactive, Not Reactive

Tariffs may be causing stress on your small business right now, but there are ways to manage the effects they have going forward. By evaluating your insurance strategy and policy details, you can ensure that your business is covered against evolving risks, your team’s well-being is protected and your company prepared for future economic shifts. 

EZ.Insure is here to help small business owners take control by finding the most affordable and best coverage that evolves with the times. We’ll help walk you through your coverage options, compare top plans side-by-side, and give you free, no-obligation quotes. 

To get started, simply enter your ZIP code on the right side of the screen or call one of our licensed agents at (844)-770-0876.