Author: Grit Insurance Group | Published: April 2026
If you are a contractor in 2026, you already know your material costs are not what they were two years ago. Steel, aluminum, copper, and lumber prices have all climbed since the federal government imposed 50% tariffs on imported metals in mid-2025. But here is what most contractors are not thinking about: those same cost increases are quietly changing your insurance exposure on every active project.
Higher material costs do not just hit your bid numbers. They raise the replacement value of structures you are building, increase the insured value of equipment on your jobsites, push bonding amounts higher on public projects, and create gaps in coverage that did not exist when your policies were written. If you have not updated your insurance program since these tariffs took effect, you are likely underinsured right now.
This article breaks down which tariffs are hitting construction the hardest, how much costs have actually risen, and exactly where those increases ripple into your insurance program. More importantly, it tells you what to do about it before a claim catches you short.
In June 2025, the Trump administration raised tariffs on imported steel and aluminum to 50% under an expansion of Section 232 of the Trade Expansion Act. These tariffs apply to raw steel beams, pre-fabricated metal components, finished steel framing, rebar, and aluminum products entering the United States. Copper imports also carry a 50% tariff. Canadian softwood lumber faces a separate 35.2% duty (Skanska, 2026 Winter Construction Market Trends).
The numbers are not theoretical. According to the Associated General Contractors of America (AGC), producer price indexes through January 2026 show:
The AGC's chief economist, Ken Simonson, put it plainly: "Although producer indexes are based on selling prices of domestic producers, the steep tariffs on imported metals and products are clearly enabling U.S. sellers to push up costs for construction materials and equipment."
Overall, JLL reports that material prices in 2025 averaged approximately 4.2% above 2024 levels, with longer-term tariff impacts expected to range from 5% to 25% depending on material type. Aggregate construction costs are estimated to rise roughly 8% under current policy conditions (Tax Credit Advisor, 2026 U.S. Construction Cost Outlook). The Deloitte 2026 Engineering and Construction Outlook notes that the effective tariff rate for construction goods climbed to a 40-year high of 25% to 30% in 2025.
For a typical commercial project, industry analysts estimate tariff-related cost increases of $15 to $25 per square foot on steel-intensive mid-rise construction (KOW Building Consultants). The National Association of Home Builders (NAHB) reports that metal molding and trim prices surged nearly 50% year-over-year, while UBS estimates the tariffs could raise the cost of building an average house by around $6,400.
The bottom line: since 2020, construction input prices have increased more than 43% in aggregate, with fabricated structural metal products up over 63% (Construction Owners Association). These are not temporary fluctuations. As long as the current tariffs remain in place, the cost pressure is structural.
Here is where most contractors miss the connection. Every dollar of material cost increase changes the math on your insurance. It is not just one policy - it hits multiple lines at once.
Builders risk policies are priced based on the total insured value of the project. When tariffs push steel costs up 20% and aluminum up 33%, the replacement cost of your project goes up with it. That means the coverage limit you set at project inception may no longer match the actual cost to rebuild after a loss.
According to Gallagher's 2025-2026 Construction Market Update, underinsurance is now a top concern across the industry. Elevated material and labor costs have rendered many insured property values outdated, prompting valuation disputes and potential covenant breaches with lenders. Carriers are requiring updated appraisals and tighter terms around agreed value clauses, replacement cost provisions, and inflation guards.
If your project was priced at $10 million before tariffs took effect and material costs have risen 8% to 15%, you could be $800,000 to $1.5 million short on your builders risk limit. That is money coming out of your pocket if a fire, storm, or theft hits your jobsite. Review your builders risk coverage now - not after a claim.
Inland marine policies cover tools, equipment, and materials in transit or stored on jobsites. Premiums are based on the total insured value of that property. When the cost of copper wire, steel beams, and aluminum panels goes up 15% to 33%, the replacement cost of materials sitting on your site goes up too.
The same applies to construction equipment. The AGC reports that the producer price index for construction equipment and machinery rose 5.6% in the last 12 months. If your equipment schedule still reflects last year's values, your inland marine coverage is behind.
This is especially critical for contractors who store high-value materials on site before installation. A single theft or weather event could expose a gap between what your policy covers and what it actually costs to replace those materials at today's prices.
Performance and payment bonds are issued at 100% of the contract value. When material costs drive up project bids, the bond amount rises in proportion. A project that would have been bid at $5 million two years ago may now come in at $5.4 million or higher due to tariff-driven material inflation.
That means the contractor needs a larger bond, which requires more bonding capacity. For contractors near their single-job or aggregate limits, a few percentage points of cost inflation can be the difference between qualifying for a project and getting turned down by the surety.
This also affects contractors bidding on federal projects. The Miller Act requires performance and payment bonds on all federal construction contracts over $150,000. As tariffs push bid amounts higher, more projects cross that threshold, and existing projects require larger bonds. Contractors who have not reviewed their bonding program with their surety agent in the last 12 months should do so immediately.
General liability premiums are typically rated on revenue, payroll, or project values. As tariffs inflate the cost of materials, contractor revenue often rises even when the volume of work stays the same - because the same project simply costs more. That inflated revenue shows up at your annual audit, and your GL premium adjusts upward accordingly.
There is also a claims severity angle. When it costs more to repair property damage caused by a contractor's operations, GL claims become more expensive to settle. BCG's analysis of tariff implications for insurance notes that higher prices for construction materials are driving up rebuilding and repair costs across property and liability lines, and that claims can cost 20% to 30% more to settle in 2026 than they did before tariffs took effect.
Longer project timelines caused by material sourcing delays also extend your exposure period. More days on site means more opportunities for incidents that trigger GL claims.
If you own your shop, yard, or office, the replacement cost of that building has gone up with material prices. A commercial property policy based on pre-tariff values may leave you significantly underinsured. The same logic applies to business interruption coverage. If a covered loss shuts down your operations and rebuilding takes longer because of material lead times and higher costs, your business income coverage needs to reflect that reality.
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The tariffs are not going away anytime soon. Industry experts and trade policy analysts agree that even if some relief comes, it will take months or years to materialize and flow through to material pricing. Here is what you should do today.
Review your builders risk limits, inland marine schedules, and commercial property values against current replacement costs - not the numbers from when the policy was written. If your project values have increased 8% to 15% since your last review, your coverage limits need to match. Ask your agent about escalation clauses and inflation guard endorsements that can automatically adjust limits as costs rise.
Talk to your surety agent about how higher bid amounts affect your single-job limit and aggregate capacity. If you are bidding on larger projects because material costs have pushed contract values up, your surety needs to know. Proactive communication with your surety company keeps you bondable when it matters. Start with the Grit Bond Scorecard to see where your bonding program stands.
Contractors across the industry are adding escalation language and tariff clauses to their contracts. The AGC recommends using the ConsensusDocs 200.1 Material Price Escalation Amendment for any contract where material delivery extends beyond 90 days. Do not absorb tariff risk that belongs in the contract.
If tariff-driven cost increases are inflating your gross revenue, let your insurance agent know before your annual audit. Proactive communication prevents surprise premium adjustments and gives your agent time to shop for better terms if needed.
The best move is a full program review with an agent who understands construction. Not just one policy - your entire insurance and bonding program. Builders risk, inland marine, GL, commercial property, auto, workers comp, umbrella, and surety bonds should all be reviewed together against your current project pipeline and cost assumptions.
As of early 2026, aluminum mill shapes are up 33% year-over-year, steel mill products are up 20.7%, and copper is up 15.7%, according to the Associated General Contractors of America. Overall construction costs are estimated to rise roughly 8% under current tariff conditions, with steel-intensive projects seeing the highest impacts at 15% to 25% above early 2025 levels.
Yes. Builders risk premiums are based on the total insured value of the project. When material costs rise, your project's replacement value rises too. If you do not update your coverage limit, you risk being underinsured. Carriers are now requiring updated appraisals and tighter terms around replacement cost provisions.
When material costs push contract values higher, the required bond amount increases proportionally since performance and payment bonds are issued at 100% of contract value. This means contractors need more bonding capacity and may need to work with their surety agent to adjust their bond program to handle larger individual projects.
Absolutely. Industry groups including the AGC recommend that every new contract include a material price escalation provision, especially when material delivery extends beyond 90 days. The ConsensusDocs 200.1 Material Price Escalation Amendment is the current industry standard. This protects you from absorbing tariff-driven cost increases that were not foreseeable at bid time.
Now. If you have not reviewed your insured values, bonding capacity, and coverage limits since mid-2025, your program is likely based on outdated cost assumptions. Contact your insurance agent for a full program review. For bonding and commercial insurance built around your actual project pipeline, call the Grit team at (801) 505-5500 or visit gritinsurance.com.
Tariffs are not just a procurement problem. They are an insurance problem, a bonding problem, and a risk management problem. Every contractor running active projects in 2026 is carrying higher replacement values, higher insured amounts, and higher exposure than they were 18 months ago. If your insurance program has not been updated to reflect that reality, you are carrying risk you do not know about.
The Grit team works with contractors nationwide on surety bonding, builders risk, inland marine, general liability, and full commercial insurance programs. We understand how material cost inflation changes your coverage needs because we came from the industries we serve.
Call us at (801) 505-5500 or visit gritinsurance.com to schedule a coverage review. Do not wait for a claim to find out your numbers are wrong.
Grit Insurance Group is a national independent insurance brokerage specializing in contractor insurance and surety bonding. Licensed in 21 states and writing coverage nationwide.