How Rising Costs Are Affecting Public Sector, Industrial, and Commercial Property Owners
With the recent reintroduction of tariffs between the United States and Canada, property owners across the country are facing a new layer of risk. These trade measures, designed to protect domestic industries, are having unintended consequences on construction costs, equipment pricing, and ultimately, insurance coverage. For public sector institutions, industrial facilities, and commercial real estate holders, it is now more important than ever to ensure their insurance values reflect current realities.
At the heart of this issue is the concept of replacement cost — the amount it would take to rebuild a property or replace equipment with materials of like kind and quality at today’s prices. When tariffs increase the cost of imported steel, aluminum, lumber, and machinery, the replacement cost of buildings and machinery and equipment also goes up. Without an updated insurance appraisal, property owners are at risk of being significantly underinsured.
- Tariffs Are Driving Up Replacement Costs
As of 2025, the U.S. has imposed 25% tariffs on Canadian steel and aluminum, and duties on Canadian softwood lumber are approaching 40%. These materials are foundational to construction and manufacturing. From structural steel and rebar to window frames, ductwork, and framing lumber, nearly every component of a building or piece of equipment is now more expensive to replace.
This impacts insurance in a very direct way: if your policy is based on outdated valuations, your coverage might not be sufficient to cover a total loss. This can result in significant out-of-pocket expenses for rebuilding or replacement.
- Avoiding Co-Insurance Penalties
Most commercial and public sector insurance policies include a co-insurance clause. This provision requires that the insured value of a property be within a certain percentage (often 90% or 100%) of its actual replacement cost. Failure to meet this threshold can result in penalties, even if the loss is partial.
In a tariff-inflated cost environment, many property owners may unknowingly fall below this threshold. An appraisal performed by a qualified firm ensures compliance and helps protect against these avoidable penalties.
- Accounting for Supply Chain Changes and Tariff-Related Costs
Tariffs have not only raised prices but also disrupted global supply chains. Contractors and equipment suppliers are now sourcing materials from alternate markets, often at higher prices and with longer lead times. These hidden costs — logistics, duties, expedited shipping, and procurement complexities — all factor into what it truly costs to rebuild or replace assets.
An accurate appraisal includes these updated cost considerations, helping property owners set realistic insurance limits.
- Industrial and Specialized Equipment Risks
Industrial operations face a unique set of challenges. Much of the machinery and equipment used in manufacturing, energy, and processing industries is imported or built with tariff-affected materials. Replacing this equipment is now significantly more expensive.
If you have not completed an insurance appraisal recently, there’s a good chance your coverage doesn’t reflect these increases. An appraisal can capture current values and protect against coverage gaps that could delay or hinder recovery after a loss.
- Public Sector and Commercial Real Estate Implications
Municipal buildings, schools, hospitals, and other public assets must also contend with rising construction costs. For government entities with tight budgets, being underinsured can have major implications for recovery and service continuity following a disaster.
Similarly, developers and commercial property owners operating on thin margins or under fixed-price contracts could find themselves severely exposed if their insured values are outdated. Appraisals are not just for insurance; they also support budgeting, capital planning, and financial reporting.
- Strengthening Insurance Placement and Claim Support
In today’s market, insurers are paying closer attention to insured values. A current, professionally prepared appraisal provides credibility and helps in securing favorable terms and conditions during renewals. It also improves claim outcomes by demonstrating that values were based on independent, up-to-date analysis.
The Bottom Line: Now Is the Time to Act
Tariffs are reshaping the cost landscape for construction and equipment across Canada. For property owners, staying ahead of these changes means ensuring your insurance coverage is accurate and defensible. A professional insurance appraisal is a proactive, cost-effective step that protects your assets, improves compliance, and provides peace of mind.
Whether you’re managing a municipality, running a manufacturing operation, or investing in commercial real estate, now is the time to reassess your property values. In a volatile trade environment, knowledge is not just power — it’s protection.