The insurance industry has recently been buffeted by formidable headwinds in the form of higher inflation, raised interest rates, as well as an increasingly protectionist business environment. For consumers, this economic turmoil led to a substantial rise in the cost of food, energy and other commodities. As a consequence, it is hardly surprising 43% of customers have chosen to cancel certain insurance coverage programmes in a bid to save money.

Geopolitics have recently played a big role in the insurance industry. The Russia-Ukraine geopolitical war affected the world’s economy, and this has impacted the insurance industry vastly. With many people being indirectly affected by the war, insurees are claiming insurance all around the world.

On the business side, major insurers are upgrading their offerings to capture the market’s new potential whilst addressing key issues such as natural catastrophes, inflation, supply chains, cyber risks, geopolitics, and motor fleets.

Given these difficult circumstances, it is of vital importance insurance companies deliver cost savings wherever possible on their international payments and foreign exchange and receive a seamless and secure experience.

At Moneycorp, we've been helping insurance providers to effectively manage their exposure to currency markets for international operations for more than 40 years. Our services also make it easier for insurance businesses to succeed in a challenging economic landscape through cutting-edge payments technology with bank-grade security, access to over 120+ currencies in more than 190 countries, as well as competitive pricing and exchange rates. Discover how we can help insurers with our foreign exchange solutions.

What contribution does the insurance industry make?

The insurance sector is of vital importance to the UK economy, as of 2020, the UK insurance industry is the largest in Europe and the fourth biggest in the world. In addition to employing 321,000 professionals across the UK, with regional clusters that include Edinburgh, Norwich and York, it manages investments of almost £1.7tn and contributes more than £16bn in taxes to the UK government.

The insurance sector accounts for approximately 1.6% of the UK’s GDP, and it plays an important role in facilitating commerce by providing businesses with the security required to operate. It’s safe to say the insurance industry will continue to act as a significant contributor to the UK’s income and employment for the foreseeable future.

How exchange rates can affect the insurance industry

Volatility in the foreign exchange markets exposes insurance companies, with their global coverage and the need to settle claims in different currencies, to several risks. The main risks insurance companies face are as follows:

1. Transaction risk. This refers to the exposure insurance firms face when making financial transactions across different jurisdictions. If the relevant exchange rate changes between the transaction date and the point of settlement, i.e., if the domestic currency weakens against the transaction currency, insurance companies will find they are liable to pay out more than initially anticipated when settling insurance claims. To give an indication of the sorts of volumes being transferred in the global markets, banks trading with ‘other financial institutions’, i.e. non-reporting banks, hedge funds and institutional investors, grew to $3.6tn, or 55% of the global total, in 2019, according to a BIS Triennial Central Bank Survey of turnover in the FX markets.
2. Economic risk. This refers to the risks created by unexpected macroeconomic occurrences, such as government regulations, rising inflation and geopolitical disputes. Such information and events can create instabilities in foreign exchange rates and undermine the competitiveness of insurance companies. In 2021, for example, the insurance industry suffered a loss of $105bn as a result of natural catastrophes, such as floods, severe thunderstorms and heatwaves.
3. Translation risk, or translation exposure. This type of risk arises when companies use foreign currencies and list foreign assets on their balance sheets. Given the requirement for parent companies operating internationally to prepare consolidated accounts in a single currency, adverse movements in foreign exchange rates can result in losses being incurred on their balance sheets when the subsidiary’s assets and liabilities are translated into the reporting currency.

Our foreign exchange solutions for the insurance industry

In these times of economic and geopolitical uncertainty, it is particularly important for insurance companies to reduce their operating costs and remain profitable during periods of exchange rate volatility. Our FX solutions for insurance firms have helped minimise exposure to currency rate fluctuations and navigate the challenges posed by transaction, economic and translation risk.

The services we provide are tailored to the unique needs of each business which we partner with. By taking the time to gain a full understanding of each of our clients’ requirements and assess their currency risk, we can help identify suitable foreign exchange hedging strategies, guaranteeing your insurance business is in a good position to make substantial savings on international payments.

We also offer regular market updates on currency movements. These offer an impressive level of predictive accuracy, in addition to seamless, robust technology which allows the management of payments at scale in a safe, secure manner. Our online multi-currency accounts for businesses provide competitive pricing and access to more than 120 currencies. As a currency exchange specialist with a proven track record spanning the course of more than 40 years, At Moneycorp we are confident your insurance company will benefit from our decades of industry experience and the expertise our team has to offer.