Trends in Treasury for the Insurance Industry

Plan your priorities for 2022

Trends in Treasury for the Insurance Industry

Innovative developments in cash management, combined with the application of cutting-edge technologies, ensure that the corporate treasury function is heading towards a truly real-time, frictionless and data-rich environment. For treasurers in the insurance industry, this article looks ahead to the final quarter of 2021 and explores the key trends to understand and monitor.

When contemplating general trends and requirements in the insurance sector, the current pandemic should remind us that we can no longer completely rely on past trends and historical data.

Cash visibility and forecasting

Typically, the insurance sector is one where the working capital cycle is relatively steady – the base model for many insurers is to collect premiums upfront, and statistical modeling of cash outflows means that cash flow forecasts can be produced relatively quickly.

However, recent technological developments in digitalization have enabled improved data governance, which in turn makes more reliable data available that can be used to further improve the accuracy of cash forecasting over different time horizons. As a current trend in 2021, we observe a growing number of companies using ‘what-if’ scenarios to stress test their long-term forecast. An example of this is the estimation of payout figures, based on a diverse set of worst case scenarios – such as pandemics, flooding or forest fires, to name a few – and the application of these scenarios to forecasts. It has become necessary to assess the cash position on a more frequent basis than before. Also, by utilizing more reliable data and scenarios in their forecast, the treasury function is better prepared to react to events and make insightful decisions in a timelier manner.

Virtual Accounts

Another trend previously identified by Zanders is the application of virtual accounts (VAs). The benefits of using virtual accounts are clear – cost reductions, reduced account maintenance, less reconciliation, and increased cash pooling opportunities. Typically, insurance companies, pension funds and asset managers use VAs to segregate clients’ funds from their own accounts and have become early adopters for that reason. Despite those benefits being widely recognized across insurance and other sectors, the actual implementation of VAs has only now begun to rise in importance for many organizations. Despite the global setup and use of VAs still being burdened by legal restrictions in some geographical locations, such as the requirement for physical bank accounts in some examples, the overall benefit of their use has begun to outweigh any counterarguments.

Data and (revolutionary) technology

The use of exponential technology in the treasury environment will continue to be a trend in the remainder of 2021 and beyond. We have reached a stage where this is no longer just a buzzword, and we see an increasing number of organizations successfully adopt exponential technology to realize a variety of benefits.

For example, there are organizations using tools such as robotic process automation (RPA), artificial intelligence (AI), and application programming interfaces (APIs) to enable better handling of both structured and unstructured data sets. Additionally, we notice that tools that utilize AI technology are becoming more common, such as platforms that are able to identify anomalous payments. Some errors or fraud in manual payments processes are not easy to detect, and hence these types of payments can easily slip through. The learning capabilities of AI are now supporting the identification and prevention of these erroneous or fraudulent payments.

The rising use of APIs also brings opportunities to view bank account information. Previously, information such as prior day or intraday statements and balances would need to be retrieved from banking systems via the SWIFT network. Using APIs, information can now be obtained from the banks in a timelier manner, facilitating a more up to date view of an organization’s cash position. Furthermore, APIs introduce the possibility to access and handle bank account data more efficiently, and to spread these activities more evenly throughout the day rather than being reliant on daily or intraday messaging arrangements.

As part of the digital transformation of the payments landscape, the opportunities to adopt and make use of secure and real time payments are increasing. There are now 56 countries live with an instant payments scheme, with more countries looking to implement a similar scheme. For insurers, this opportunity increases their ability to improve the service to their customers – and this opportunity is readily being seized by many to settle customer claims more quickly and efficiently, with improved controls. However, this introduces a new challenge from a cash management perspective: is there enough money available to make these payments?


With digital technology’s ‘industrial revolution’, treasury practitioners are inheriting new roles and responsibilities. An organization’s innovation capacity comes down to how well it channels its efforts in training and retaining its talent pool, while utilizing their intellectual capacity to the maximum. The successful application of technology requires the business, culture, and people to be aligned.

Whether your organization is actively building a highly skilled workforce, or the people are more broadly grounded, the greatest assets for any organization are still the individuals they employ, particularly those that are accustomed to embracing and delivering the rapid application of the digital technologies.

Regulation and compliance

Increasing regulatory burdens will also keep Treasury occupied, so treasurers should be familiar with all relevant regulation to ensure compliance and minimize operational hiccups. There are a number of topics that those in the insurance sector should be keeping an eye on:

Although Solvency II and Basel IV regulatory updates did not come into effect recently, they continue to impact the cash management function, and dictate how insurance companies can manage their cash efficiently and effectively.

Another topic that is getting significantly more attention is the KYC scope by banks. This is driven by the introduction of stricter regulations, such as ultimate beneficial owner (UBO) registers, combined with a more risk-averse approach from banks to ensure that they comply with AML and anti-terrorist funding regulations to avoid fines.

The current financial ecosystem continues to become more digitally driven, focusing on a more competitive, integrated, and secure environment. This ecosystem is being fueled by the Payment Service Directive (PSD2) across the EU, the Open Banking Standard from the UK’s Competition and Markets Authority (CMA), and the Consumer Data Right (CDR) changes being introduced in Australia.

A regulatory hot topic for 2021 continues to be IBOR replacement, with the ultimate transition deadline set for 31 December 2021. For new financial instruments, it is already advised to use the replacement reference rate and on 23 October 2020, the International Swaps and Derivatives Association (ISDA) launched the IBOR Fallback Protocol. This protocol states the replacement risk-free rate (overnight rate) supplemented by the term structure and credit sensitive elements, and to support this ISDA partnered with Bloomberg to quote the adjusted risk-free rates .

Additionally, the ISO 20022 XML format for financial messaging between financial institutions is being standardized globally. This transformation aims to ‘future proof’ bank messaging, and all messages sent through TARGET2 and EURO1/STEP1 will be required to be in the ISO 20022 format by November 2022. In simpler terms, this means that the sending and receiving of SWIFT messages will require an adjustment, and a move towards the more flexible XML format. There is no regulatory need for this standardization, but rather is designed to lead to benefits for all parties involved. Read more>> The ISO 20022 XML standardization transformation

To conclude

All of these trends will have a profound impact on the treasury function in the insurance and other sectors, as we move towards a truly real-time, frictionless and data rich environment that will enable treasury to elevate liquidity and risk management processes.
As with any change, there will be both opportunities and challenges. Therefore, it is important that these changes are evaluated and monitored, as they provide a clear opportunity to drive even greater financial and operational efficiencies.