Global businesses are navigating a volatile risk landscape with the reintroduction of tariffs – particularly those imposed by the Trump administration-reshaping global trade flows, increasing input costs, and triggering supply chain delays.

Because of higher operational risks, increasing tariffs can have a domino effect on business insurance prices.

The Lloyd’s Market Association has urged insurers to reassess their “value at risk,” as a result of the global tariffs. Elizabeth Wooliston, underwriting director at the LMA, said. “At its most basic level, if tariffs make goods and spare parts more expensive, insurance claims will, in all likelihood, rise. This could mean that premiums may have to increase or cover may be decreased – otherwise insurers could face a significant potential margin squeeze.”

She also warned that tariffs could create ambiguity and lead to increased supply chain disruption.

Businesses can be exposed by insurance programmes designed on outdated assumptions and for Company Owners, Directors and Risk Managers it is not only prudent but essential to ensure that sums insured reflect the true reinstatement or indemnity value of your assets.

For any company with cross-border operations, disruptions have direct consequences on insurance adequacy, especially for physical assets and business interruption (BI) cover. Companies must now review whether current insurance limits reflect the real cost of recovery after a loss.

Key considerations include:

Avoiding the Pitfall of Underinsurance and the ‘Average Clause’

Most commercial property policies contain an ‘average clause’. This clause reduces any claim payout if the sum insured is less than the actual value at risk.

For example, if a production machine is insured for (£$€)750,000, but the true reinstatement cost is (£$€)1,500,000 (including freight, import duties and installation), only 50% of a loss – regardless of size – may be paid.

This clause typically applies to reinstatement-based assets such as buildings, plant and machinery, but the consequence of under-declaring values is the same: reduced claims settlement.

Reinstatement vs. Indemnity Basis – Know the Difference

Buildings, machinery and plant are usually insured on a reinstatement basis – the cost of replacing or rebuilding with equivalent new items. This includes not only the item itself but also delivery, duties, commissioning and related expenses.

Stock, however, is insured on an indemnity basis, i.e., the lower of the replacement cost or its value at the time of loss, adjusted for wear and tear or obsolescence.

While tariffs and freight increases may still affect stock values, insurers will not pay for improvements or new-for-old replacements.

Trade Wars and the Cost of Recovery

Tariffs on goods imported from key manufacturing hubs (e.g., China, India) are inflating the cost of replacing imported machinery. Many businesses are re-sourcing equipment from alternate countries, but this also has implications:

• Higher unit costs from new or less established suppliers

• Extended lead times due to lower production capacity or less developed logistics networks

• Greater likelihood of delays or performance issues, especially when switching suppliers under time pressure.

Business Interruption (BI) Ramifications

• Delays in reinstating plant or receiving essential components can lengthen downtime and disrupt income. This raises two key concerns:

• Is your indemnity period sufficient? For small businesses, 12 months is probably too short. Consider 18–24 months or longer. Larger businesses may have significantly longer lead and recovery time needs and this ought to be considered properly.

• Does your gross profit sum insured reflect extended downtime and higher recovery costs (e.g., expedited freight, alternative suppliers)?

Where your business is dependent on overseas suppliers or customers, contingent BI cover may also be needed to protect against knock-on effects from third-party disruption.

Stock Insurance and Supply Chain Inflation

While stock is covered on an indemnity basis, its insured value must reflect actual landed cost, not just purchase price. This includes:

• Tariffs or customs duties

• Freight and logistics costs

• Handling or warehousing charges

Companies should also review how frequently stock valuations are updated in policies, especially when holding high volumes or rapidly fluctuating goods. Recommended Actions for Global Risk Managers include:

• Review asset valuations across all countries and update sums insured to reflect current reinstatement costs and full landed stock costs

• Ensure machinery values include transport, duties, and reinstallation costs

• Reassess indemnity periods and BI limits, factoring in current lead times and global sourcing volatility

• Identify single points of failure in your supply chain and consider BI extensions for suppliers and customers

• Commission independent valuations where asset values are high or complex

• Check the definitions, terms and conditions of your insurance policy to properly understand what you are insured for.

• Work with your broker to stress-test existing cover against real-world loss scenarios under today’s trading conditions

For support in reviewing your international insurance limits and BI exposure, speak to your W Denis contact today. To discuss this further with a broker at W Denis, please make arrangements with: 

Eastern Europe

Vida.Jarasiunaite@wdenis.eu

Southern Europe

Christos.Hadjisotiris@wdenis.com

Western Europe &/or elsewhere worldwide

Mark.Dutton@wdenis.com