It's not just the share market that is in freefall - currency traders are also shaking their heads at the sudden and extreme drop in the Australian dollar.

It's been a long slide from the dizzy highs of three months ago. On July 15, experts were talking seriously about parity with the US dollar. The "Aussie" peaked at 98.02 cents before going into freefall.

There was a slight hiccup in September when the currency lurched back 10%, rising from 78 cents to 85 cents over a few short days. But the pessimism over resource-based economies kicked back in and the past two weeks have seen the local currency drop even further, bottoming out at 66.89 US cents late last week.

Taking the two extreme ends of the slide, that's a 31.75% drop in less than a quarter. And the pain is not limited to the Aussie's relationship with the US dollar, either. Plot it against the Euro (down 20.6%), the yen (down 35.9%) or the UK pound (down 21%) and you get a similar result.

All around the world, the holders of wealth are getting out of Australia and its financial assets and reverting to instruments measured in the so-called "safe" currencies.

The effect on the Australian insurance industry will be significant, but not - according to analysts that spoke with insuranceNEWS.com.au - necessarily grave.

QBE is the big winner. With such a significant proportion of its business based overseas, any drop in the Australian dollar means big improvements in the bottom line when the company translates its earnings into its home currency.

JP Morgan's Siddharth Prameswaran says every percentage drop in the Aussie dollar will increase QBE's overall long-term earnings by up to 0.75%.

The news is also positive for IAG. Its UK subsidiaries have never gone as well as the company would have hoped but they're not making losses. And as long as those results stay in the black, the strong pound - now worth 2.5 times the Aussie - will magnify the earnings on the home balance sheet.

What it will mean for all Australian insurers - except QBE - is a cooling-off of international acquisitions. Until the market can settle on a stable price for the Australian dollar, any international purchase is likely to cause shareholder consternation.

That's unlikely to deter IAG from going ahead with its plan to move into the Indian insurance market, but apart from that any expansion beyond Australia's shores by locally listed insurers is very unlikely in the medium term.

Mr Prameswaran says all businesses will need to assess and reassess any potential acquisitions.

Will the new economic realities encourage foreign insurers to make some opportunistic bids in the local market? Mr Prameswaran says the current state of global finance makes that unlikely - on this occasion. "I don't think anyone's got any money for that sort of thing."

Nobody knows how low or how long the dollar's slide will go, or at what price to the world's leading traded currencies the Aussie will eventually settle.

Mr Prameswaran says some depreciation was expected - with many experts considering the recent high prices to have been "overvalued on a long-term basis".

"The market's moving so quickly every day," he said.

But a new average rate of 70 US cents to the Australian dollar "could well be the new reality". That rate would be in line with the average value since the Aussie floated in 1983.

It will put additional pressure on local insurers. For example, reinsurance will cost more, which may encourage some local businesses to retain more risk on their books. And it will also put pressure on them to increase rates.

Although we've seen few signs yet of any across-the-board rise in premiums in the commercial insurance sector - any rises have been minimal and sector-based - the falling value of insurers' investments and rising costs will force them to reassess. The word on the street - analysts are far too cautious to state such beliefs publicly - is that commercial rates will start rising sharply as early as next month.