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Vladimir Njegomir1, Jelena Demko Rihter 2
1 Faculty of Legal and Business Studies, Novi Sad
2 Faculty of Technical Sciences, Novi Sad
Innovations of Insurance Companies and
Investment Funds
UDC: 005.591.6:368 ; 005.591.6:336.07
DOI: 10.7595/management.fon.2013.0014
XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia
1. Introduction
Etymologicaly, to innovate means to renew, to restore and the word stems from Latin word innovare. It
essentially means the introduction of something new or different. Innovations are usually classified into prod-
uct and process innovations (e.g. Oslo Manual, 2005; Greenhalgh & Rogers, 2010; Allen & Yago, 2010; and
Pain, 2011). The product innovation is the introduction of a new or significantly improved product or service
that improves the range and quality of those currently offered. The process innovation is the introduction of
a new or significatnly improved process of production or delivery of goods and services. In addition to
product and process innovations, classifications can also encompass organisational innovations (e.g. Olso
Manual, 2005; Allen & Yago, 2010 and Pain, 2011) as well as marketing innovations (e.g. Olso Manual, 2005
and Pain, 2011). According to Oslo Manual (2005) “an organizational innovation is the implementation of a
new organizational method in the firm’s business practices, workplace organization or external relations”
(p.51). Also, according to Oslo Manual (2005) “a marketing innovation is the implementation of a new mar-
keting method involving significant changes in product design or packaging, product placement, product
promotion or pricing” (p. 49).
Furthermore, innovations can be classified by the degree of novelty. It is well known (e.g., Schumpeter, 1934
and Abernathy & Utterback, 1978; Oslo Manual, 2005; Greenhalgh & Rogers, 2010; Allen & Yago, 2010;
and Pain, 2011) that innovation not necessarily means the introduction of radically new products and
processes. In financial services, especially in insurance industry, innovations are more often incremental in
their nature (Pain, 2011). In this regard, depending on the degree of radicalism, innovations can be divided
into incremental, evolutionary and transformational (Pain, 2011).
Management Journal for Theory and Practice Management 2013/68
The aim of this paper is to review the recent progress in innovation activities of investment funds and insur-
ance companies. The paper reviews the main innovation trends globally, their causes and consequences. The
research has identified that innovations of insurance companies and invesmtnet funds are predominantly in-
cremental and focused on products although they usually refer also to processes, marketing and overall or-
ganisation. In investment fund industry, the main innovations recently have been credit swap defaults (CDS),
Exchange Traded Funds (ETF), hedge funds, social impact bonds and other innovative products. In insurance
industry, in addition to incremental innovations such as amendments to contracts terms and conditions, re-
cent innovations encompass microinsurance, enterprise risk management, e-businss applications, bancas-
surance, index insurance and alternative risk transfer. By summarizing the current state of knowledge of
innovation activities among insurance companies and investment funds, the paper can be useful for domes-
tic investment funds and insurance companies to identify possible areas for innovation as well as for govern-
ment bodies to understand why fostering creation of innovation-friendly environment will bring benefits not only
to financial services industry but to the society as a whole. Finally, the results presented in the paper are a good
starting point for future research.
Keywords: innovation, insurance companies, investment funds
Innovations have had a paramount importance throughout the human history. Innovations such as fire,
wheel, agriculture, pottery, irrigation systems, use of metals, writing and so on, actually directed the history.
Without innovations humans would never calculate, write, sail, drive, trade and improve their overall well-
being. The success of Japan and Japanese companies after the Second World War is the obvious example
of the importance of innovations. Namely, the success of Japanese companies in global markets is mainly
attributed to continuous innovations by Nonaka & Takeuchi (1995) who pointrd out that their success
originates in their „capability to create new knowledge, disseminate it throughout the organisation, and
embody it in products, services, and systems“.
Nowadays, innovation is the key driver of competitiveness, economic growth and prosperity (Chandra, et
al, 2009). Marklund, Vonortas & Wessner (2009) point out that “innovation is essential to economic life, as
it is the main determinant of economic productivity and productivity growth in firms, sectors, regions and na-
tions and thus it is strategic issue for business of firms and public policy” (p.3). Innovation activities are
especially important for companies doing business globally as confirmed by Knight & Cavusgil (2004). By
investigating companies that expand into foreign markets and exhibit international business from or near their
founding they highlight the critical role of innovative culture as well as knowledge and capabilities.
Investments in research and development are common nowadays in order to foster innovations. However,
it became obvious that new knowledge can generate economic growth and jobs only by its transformation
through entrepreneurship in innovations (Audretsch, 2009).
Since the ancient societies of China, Mesopotamia, Egypt, Greece and Rome, financial innovations have
always underpinned other innovations and made possible agriculture, especially the production of olive oil,
wine and sugar and production of precious goods (Allen & Yago, 2010). The roots of insurance can be
traced back to 5000 B.C. when traders in China dstributed their cargo into several ships in order to diversify
risks of carrying the goods over the Jangce river. The development of modern insurance started with the first
insurance company established in the U.K. in 1667 (Njegomir, 2011a). Finally, the first mutual fund has been
invented in 1774 in the Netherlands (Allen & Yago, 2010). More recent studies (e.g., Ćirić & Njegomir, 2011)
indicate that the development of financial services is indispensable for entrepreneurship and innovation.
Insurance companies and investment funds facilitate innovations in other industries. By accumulating capital
and providing risk diversification, on one hand, and by fostering technological progress, on the other,
financial innovations facilitate economic growth and improve social welfare (Chou & Chin, 2004). The
question that we are trying to answer in this paper refers to types of innovations that are present in the
insurance and investment fund industry.
2. Insurance industry innovations
Historicaly, insurance companies have been conservative regarding innovations, especially those of radical
character. Althought innovations in insurance as well as in other industries present the foundation of success,
there are many studies that indicate to conservativity. Pearson (1997), on the basis of the analysis of
insurance industry in Great Britain during the period between 1700 and 1914, points out that innovations in
insurance are an important ingredient of success but have mainly counter-cyclical character and are relatively
undynamic. Garth (2011) indicates that insurance companies were innovative during the sixtees and
seventies of the twentieth century while after that they became less innovative.
Innovation is recognized to be especially important for market-oriented insurers. Lado and Maydeu-Olivares
(2001) investigated the influence of competitive environments on the uses of market orientation in insur-
ance companies in the EU and the USA and the effects of market orientation on innovations. They found that
EU and US insurance firms analyze and react to their environment differently and this is reflected in a dif-
ferential impact on their degree of innovation. However, there are no identified overall market-orientation dif-
ferences between market orientation and innovation degree and performance. They also found a positive
impact of overall market orientation on insurance firms’ innovation degree and performance in both the US
and EU markets.
The thesis of the relationship between innovation and long term success in insurance has been confirmed by
many studies. Lehmann & Zweifel (2004) have confirmed the thesis for health insurance. By ascertaining that
important motive for deregulating social health insurance were to encourage product innovation and analysing
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2013/68Management Journal for Theory and Practice Management
risk selection in deregulated social health insurance, they found that cost savings achieved by non-US man-
aged care plans are attributable to product innovation. Garth (2011) indicates that while insurers were
innovative, they achieved growth, expanded customer access and became more efficient. Lee, Wang & Chang
(2011) have found that marketing innovation cast a significantly positive impact upon the performance in the
case of life insurance companies listed in Taiwan. By analyzing a panel data set of 12 private life insurance
companies over the financial period 2006-2009 in India Dutta & Sengupta (2010) found that increasing in-
vestment on IT-infrastructure that resulted in technological innovation in business operation has a favourable
impact on efficiency. Innovations in insurance also have a positive impact on financial intermediation, capital
accumulation, risk diversification and increased economic efficiency (Pain, 2011).
Despite the traditional conservative approach to changes in products, processes, marketing and
organisation, the pace of innovation activities in insurance industry has been identified recently. New
regulations such as Solvency II in Europe, changing competitive environment not only among insurance
companies but also with other industries such as an investment or pension fund industry, the changing
nature of existing and emergence of new risks, such as environmental liability risks, an increasing probability
and intensity of loss events because of external influences such as terrorism or climate changes, the need
for constant influence on public confidence in insurance, the change in customer preferences, economy,
politics and technology are all forcing insurance companies to innovate. The aformentioned and similar
changes are happening all the time and are pushing insurers to constantly respond to them by innovations.
Hereinafter we explain the most important recent innovations in the global insurance industry with no
particular order.
Insurance is a type of financial service that can potentially help avoid high costs of other risk management
approaches. Also, insurance can provide preservation of financial position in the event of a loss but also
protect from poverty. However, insurance is usually seen as a luxury by poor or at least there is their distrust
in the security of coverage as it cannot be felt, smelt or touched. As a result of expressed needs,
microinsurance has been developed as a model for organisation of insurance activities for the poor.
Microinsurance provides financial indemnification in the case of a loss event, provides avoidance of other
cost-ineffective mechanisms of loss protection, which as a final result has reduced poverty (Njegomir, 2011b).
The term “microinsurance“ appeared at the begining of ninetines and since the middle of ninetines it has
been in use by the International Labour Organisation and UNCTAD. The motives of microinsurers creation
are various. Microinsurance is essentially intended for the poor, unemployed or employed in the informal
sector, or in other words, for persons that do not have access to traditional insurance and are excluded from
social insurance programs. According to Brown (2009) the motives are: the loss protection of poor clients,
reduction of own exposure to credit risk that stems from approved loans and the possibility to earn additional
profit (p. 171). From the point of view of insurance companies, microinsurance is essentially a business
model innovation that provide them with access to people that previously have not been served. The tremen-
dous potential of this market segment is evident and that is particularly important for insurance companies
that operate in mature markets.
One of the business model innovations that appeared during the previous decade was enterprise risk
management (ERM). The idea of ERM is that companies, especially insurance companies, manage an
aggregate level of risk. Basically, ERM means to holisticaly manage all risks that the insurance company is
faced with. Insurers have traditionally managed insurance risks and that is their core business activity.
However, insurance companies are not exposed only to insurance risks, or risks that they accept from the
insured. They are exposed to many other risks such as market, credit and operational risks. Insurance
companies firstly started to apply the ALM concept that meant simultaneous management of assets and
liabilities. The main problem, however, was the fact that risks were managed individually in “silos“, that is,
in isolation from one another. Then the concept of ERM appeared. The key intention is that the solvency
position of insurance companies is better protected if risks are managed integrally, with all their
interdependences. This concept provides adequate information for management decision making that seeks
to optimise business operations through minimisation of expenses and thus profit maximisation at the given
level of agregate risk, or in other words, to minimise agregate risk at the given level of capital (Njegomir,
2007a). The concept or ERM is now preferred by rating agencies and Solvency II, a new solvency regulation
within the EU.
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Marketing is the basic precondition for the development of insurance and reinsurance. One of the most famous
management gurus of the twentieth century, Peter Drucker (1973) emphasised that enterprises basically have
only two functions, marketing and innovation, and he concluded that only „marketing and innovation produce
results, all the rest are costs.“ (p. 61). Marketing consists of individual and organisational activities that facilitate
trade in dynamic environment through creation, distribution, promotion and valuation of goods, services and
ideas (Njegomir, 2006). Although product, price and promotion are important, the most creative applications
and the most of the innovations in insurance have been made in the distribution of insurance services. This is
because the distribution channels are instruments that create the value of the place, ie. they facilitate the
availability of insurance services at the time and place where customers want them (Njegomir, 2007b).
Insurers usually use a mix of distribution channels. Traditionally they have used their own representative
offices as well as agents and brokers. They have also developed bancassurance and e-business. The basic
idea of bancassurance is to provide access to a greater number of potential customers through an
established network of bank branches. The idea of bancassurance has emerged in 1965 and has been
utilised successfully mainly in continental Europe, particularly in France, Italy, Portugal and Spain. In these
countries bancassurance facilitated insurance penetration and density and improved the structure of
insurance giving the impetus for the increased share of life insurance. Althought the idea is relatively old, it
is new in Serbia and it represents a striking example of how an old idea can represent innovation when it is
not previously applied in a specific company or market. Insurance companies in Serbia only recently, in the
last decade, have started to utilise bancassurance and insurance companies have signed long-term
contracts with banks, such as insurance company DDOR Novi Sad with Razvojna banka Vojvodine (the
Development Bank of Vojvodina), Delta Generali with the Intesa bank, Basler with the OTP bank, etc.
Althought bancassurance is an innovation on the Serbian insurance market, the most influental has been the
utilisation of the Internet in insurance. The insurance companies presence on the Internet at first has been
based on their static web site presentations. Later, e-commerce has developed. It represents a revolutionary
accomplishment in the area of insurance sales and it provided insurance companies with ever greater access
to potential customers, the improvement of sales services by providing insurance protection when and where
customers want it, multimediality and interactivity. Later, the concept of e-business in insurance emerged. It
is a sofisticated concept that means not only the sale of insurance but a full transition to virtual business. Most
recently insurers have been developing a mobile internet access and a social media presence. The mobile
internet access provides potential customers and insureds with online services that are available through
mobile phones. Now insureds, potential and existing, can quate, pay bills and report claims through their
mobile phones. Also, social media presence of insurers, especially in the US is increasing. Social networks
such as Facebook or Twitter have an increasing impact on the marketing of insurance companies as they
serve as special kind of „word-of-mouth“ promotion.
Product innovations are also very important for insurers but also for insureds and the society as they pro-
vide coverage for risks that was not covered before, offer more affordable coverage through innovative uses
of bonuses, maluses and deductibles and improve the customer satisfaction through services such as
guaranties, assistance and property replacements. One of the most prominent product innovations recently
has been index insurance, the alternative mechanism to traditional indemnity based insurance. Hellmuth et
al (2009) indicate that index insurance offers significant opportunities as a climate-risk management tool in
developing countries. According to Skees (2008), index insurance provide payments that are based upon
“an objective and independent index that serves as a proxy for significant losses to crops, livestock, or other
property” (p. 1). In order to determine payouts that may be due to drought or flood, index insurance uses
an index such as rainfall instead of possible weather consequences such as crop failure. In contrast to tra-
ditional indemnity based insurance where in the case of loss insurance company loss adjusters need to
visit individual insureds in the case of index insurance for the loss payment insurance company only needs
to know if index has reached the earlier agreed threshold. Because the used indices are usually publicly avail-
able the process of payment of losses is simplified and thus more cost effective.
3. Investment funds innovations
The one and the only thing that is certain is innovation, but it is hard to predict the form of innovations and
the intensity of changes. Investor’s demands are changing, regulations are passed, new technology has
become available and in such an investment environment investment funds seek new profit opportunities
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and adjust themselves to market changes. Innovations can also emerge without considerable changes in
external market. Particular innovations happen as a response to the impact of non-market factors, such as
changes in tax policy. Unlike innovative products and services in the real economic sectors, the output of
innovations in the business of institutional investors depends on timing and market environment.
Since 1980, investment innovations have been realised in five distinct clusters: new asset classes, new asset
allocation techniques, new risk and returns enhancing tools, new theme funds and new business models.
Considering the value delivered by some kind of innovation, the most valuable innovations are: emerging
market equities, emerging market bonds, high yield bonds, liability-driven investing and exchange traded
funds (ETFs). At the same time, innovations that deliver the least value are: leverage, structured products,
portable alpha, currency funds (Rajan, 2011, p. 6).
In the past period the most popular innovations in the investment funds industry were index funds and life-
cycle funds which bear similarity in terms of automatic portfolio allocation, then socially responsible funds,
funds of funds and one of the largest and most successful innovation are ETFs (exchange traded funds), as
a new type of investment company.
ETFs are similar to index funds, because they are also passively managed with the main purpose to achieve
returns above the stock market index (Tkac, 2007, p. 6). But the main difference is that ETF units can be pur-
chased only through the stock market, like shares. ETFs provide individual investors access to diversified
portfolios of assets that was previously been reserved for institutional investors. The ETFs reduce transac-
tion costs and increase efficiency. A disadvantage of investing in ETFs is realized when their investors be-
come unintentionally more exposed to risk because of an increasing participation of particular stocks in
index, based on rising stock prices and market capitalization.
Additional type of innovation in mutual funds industry is improvement in providing financial information needed
by current and potential investors in order to help them in decision making. There are a lot of companies in-
directly connected to investment funds industry in terms of preparing, processing and presentation of finan-
cial information about performances of investment funds (Tkac, 2007, p. 8). Individual and institutional
investors, but financial advisors and portfolio managers too, seek basic as well as for more complex and so-
phisticated information for planning, decision making and analysis. Investors need objective, relevant and eas-
ily understandable information about fund performances. Acquiring needed financial information should also
be time and money efficient. Companies that support the investment funds industry by providing the needed
financial information innovate their own business too, by implementing new types of rating, new funds’ types,
new methodologies, computer modelling and automated tools for decision making of their clients.
By investing in funds of funds investors acquire investment units in other mutual funds, not just in one fund
and through this type of investment they diversify their portfolio more and reduce risk. The world’s most fa-
mous fund families such as Vanguard and Fidelity offer ”fund supermarkets“ to their investors. In the term
”fund supermarket“ investors are ”consumers“, mutual funds are ”producers“ and the brokerage firm pro-
vides location for this special type of ”supermarket“ and also access to different mutual funds from various
fund families. The main advantage of fund supermarket is possibility for investors to buy units of different
funds in ”families“ and get common financial report for all funds together.
Accelerated development of information technology, Internet and modern web tools cause innovation and
changes in traditional investment fund portfolio management. Investment fund families, financial advisors,
information intermediaries, insurance companies and other related companies increasingly compete to sat-
isfy changing demands of current and potential investors. Through continued education of financial advis-
ers, portfolio managers and investors a way should be found to adjust non-traditional investment strategies
to traditional fund portfolios.
Investment funds strategies and core portfolios are also exposed to changes and innovation in terms of
choosing developed or emerging markets, taking long or short position, dollar vs. non-dollar investments.
Considering new assets classes and asset allocation techniques, it is obvious that in the last decade invest-
ing in emerging markets, in bonds, as well as in real assets and infrastructure has been more popular. One
asset allocation technique is GTAA (global tactical asset allocation), as a top-down investment strategy based
on utilization of short-term mispricing among global set of assets. For example, until the global financial cri-
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sis, many of the innovations included higher leverage, which has proved itself dangerous in terms of crisis.
In addition to the leverage and using of hedging and derivatives, new enhancing tools that are also applied
are shorting and portable alpha. A global trend of achieving sustainable economic development has an in-
fluence on an increasing interest of capital owners for investing in companies and projects in the fields of re-
newable energy, water, and environment. It can be noticed that all innovations, regarding new business
models, enhancing tools, fields of investments and asset allocation techniques are represented in the finan-
cial market of the USA, as the world’s most developed financial market. Financial markets of Asian countries
as huge emerging markets are also interested in implementing innovation in mutual funds industry.
Very popular innovations in the modern financial era are credit-default swaps (CDS), interest-rate swaps
(IRS), high frequency trading (HFT) and social-impact bonds. Financial innovation is the creation of new
capital structures that align the interests of lots of different parties. By creating CDS as a securitisation in-
strument risk is transferred to the underwriting institution, most frequently insurance company. The borrower
pays a premium to transfer risk. CDS protection may similarly blunt the incentives for creditors to be care-
ful when they approve or extend a credit. Securitization that has been used for decades allows banks to free
up capital, enabling them to approve more credit, and helps portfolio diversification. If everything was on
banks’ balance-sheets and capital there would not be enough credits for the needed purposes. For exam-
ple, India has recently allowed using CDS as an instrument that will attract new creditors and support the
development of India’s bond market. Also, when CDS are used inappropriately or greedily, by taking on ex-
posures that they should not, either without transferring risks, or by adding complexity in order to increase
profit margins rather than to solve problems, they show their negative aspects. Unlike CDS, interest-rate
swaps are a useful and big innovation based on betting and hedging against future changes and trends in
interest rates.
Social-impact bonds are based on the concept of risk transfer from the government to financial investors who
will get paid only if the social scheme is successful. By using social-impact bonds cash flows are created
according to the needs of the sponsor, the provider and the investor. The main difference between the so-
cial-impact bonds and other financial instruments is that this type of bond has been created explicitly for so-
cial purposes (Palmer, 2012).
High-frequency trading (HFT) means using sophisticated technological tools in trading securities. It is char-
acteristic that an investment position is held very shortly (an average holding period is about 11 seconds).
HFTs now account for over 60% of equity trading. Average investment periods for shares have shortened
from around 7 years to 7 months since 1940. HFT may damage the process of long-term capital accumu-
lation and allocation and cause problems of potential market manipulation.
In the conditions of global financial crisis and in the years after that, mutual funds have faced challenge to
be as efficient as possible, because of decreased amounts of assets under management and tighter profit
margins. At the same time it was noticed that risk management systems of mutual funds had to be more flex-
ible and be adjusted to the terms of crisis.
4. Innovation relationships between insurance companies and investment funds
The number of natural and man-made catastrophe events (Enz et al, 2008) and their financial impact
(NatCatSERVICE, 2007) is constantly rising on a global level. This rise is influenced by the impact of the trend
of climate change and concentration of people and material values (Njegomir, 2011c). As (re)insurers have
been traditionally regarded as being in a stronger financial position to pay the losses than the insureds
(Rejda, 2005), they are at the forefront of the catastrophe trends impact.
Insurers and reinsurers have traditionally managed their exposures to insurance-related risks on the basis
of the application of central limit theorem and the law of large numbers. Anything above their retention lev-
els, determined on the basis of their available capital, was transferred to reinsurance or, in the case of rein-
surers, to retrocession market. However, due to an increased frequency and severity of catastrophe events
it became obvious that the underwriting capacity of global insurance and reinsurance market is limited, es-
pecially for risks with catastrophe potential. The solution for additional capacity has been found in transfer
of insurance risks to capital markets (see Figure 2).
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Figure 1: Insurance risk transfer to capital market
Source: Njegomir (2008).
For the development of alternative risk transfer solutions that provide insurance risk transfer to capital market
in addition to insurance and reinsurance companies’ demand the interest from institutional capital market
investors, above all insurance and reinsurance companies and investment funds, especially hedge funds,
was critical. The interest from investment management community for investments in insurance risk stemmed
from the fact that these investments are uncorrelated with other risks in investor’s portfolio, relatively high
returns offered and an absence of exposure to other risks of insurance companies (Njegomir & Maksimović,
2009). Although alternative risk transfer solutions emerged under conditions of the hard
reinsurance/retrocession market, the continuation of (re)insurers interest for their application during the soft
reinsurance/retrocession market and investors interest despite the financial crisis lead us to the conclusion
that they are a sustainable solution for managing exposures to catastrophes. Additionally, having factored
in the continuation of the trend of increased frequency and severity of catastrophic events and ever
increasing the demand for additional underwriting capacity, it is reasonable to expect the increased future
usage of alternative risk transfer as a complementary solution to traditional risk transfer.
Another innovation that links insurance companies and investment funds is unit linked insurance. This is a
special type of life insurance that provide the insureds with the option to have risk protection together with
the opportunity for investing in investment units, similarly to the case of investments in investment funds.
There is usually a guaranteed sum assured but returns beyond are determined by cyclical movements of the
unit values. Basically, the actual returns are determined by the investment managers’ abilities. These in-
vestments are considered riskier than ordinary life insurance but less risky than investments in investment
funds. The developed countries have developed this type of life insurance during the sixtes. This type of
insurance is applied relatively recently in this region, only in Slovenia and Croatia. This innovation is still
undeployed in Serbia.
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Innovations have always been of paramount importance in human history, in all human activities but especially in business.
They are also recognised as crucial for the success of insurance companies and investment funds, which on the other hand
have great influence on facilitation of innovations in other industries.
Although innovations are crucial not only for the success but for the long-term survival of insurance companies, especially
those that are market oriented, traditionally, they were reluctant to introduce drastic innovations. However, the increased
pace of changes in the external environment has changed insurers behavior towards a deeper recognition of an increas-
ing importance of innovations. The most intensified innovation in the insurance industry is related to processes, market-
ing and products while organizational changes are slower and less represented. Incremental innovation has been the
specific of insurance industry but this will have to change if insurance companies want to successfully cope with growing
pressures such as increased competition from other industries and changing customer preferences.
Insurers are not absolutely free in innovation as they always need to consider limits of insurability and other basic prem-
ises of insurance business as well as regulatory constraints. Solvency, price and product regulation in insurance can ham-
per innovation. This is especially the case in the countries with product regulation where innovation regarding product can
be allowed only if all insurance companies have adopted that particular product, which in turn hampers individual insur-
ers’ innovation efforts as they cannot gain competitive advantage.
In the aftermath of the financial crisis of 2008 investors faced the negative aspects of some financial innovations. Asym-
metry of information and knowledge between users of financial services and producers is obvious and increasing. Al-
though some financial innovations have no general economic benefit, individuals and institutions which innovate can earn
Conslusion
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large returns. Most financial innovation is deliberately designed to conceal risk and reduce transparency. Efficiency and
transparency is not consistent with the high profit margins on the stock markets. Financial products usually need to be
blurred and priced inefficiently to produce excessive profits.
The innovations by investment funds and insurance companies presented in the paper are present globally but not suffi-
ciently and in many cases not used at all. Additionally, despite the scientific research results and economic development
evidence, the innovation benefits are still not fully recognized by many countries, especially in the developing world (e.g.,
Juma, C. & Yee-Cheong, L., 2005 and Bolay, et al, 2012). Thus the aim of the paper was to review the recent progress in
the innovation activities of investment funds and insurance companies and their relationship with long-term success in order
to foster innovation activities among domestic insurance companies and investment funds as well as facilitate the recog-
nition of innovation importance by governments, which will result with the creation of innovation-friendly environment. The
results presented in the paper suggest that with greater innovation by insurance companies and investment funds there
is a possibility for cheaper financing, a more efficient risk management, a greater availability of insurance coverage and
thus economic growth. Additionally, research results can provide insurance companies and investment funds with a use-
ful comparison of globally available innovations and provoke them to try to implement the already available solutions that
are not developed within domestic markets but also to start to develop their own innovation approaches.
The limitation of our study is that it is focused on the review of the main globally available innovations in insurance and in-
vestment fund industry. It does not, however, precisely determine the influences of the innovation applications on specific
national markets and individual companies. Thus, it gives the basis for a number of future research studies as all mentioned
innovations can be a basis for separate quantitative studies for micro as well as macroeconomic impact.
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Receieved: June 2012.
Accepted: August 2013.)
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About the Author
Vladimir Njegomir
Faculty of Legal and Business Studies, Novi Sad
vnjegomir@eunet.rs
Vladimir Njegomir was born in Novi Sad in 1977. He earned his master’s and doctoral
degrees in the field of risk management, insurance and reinsurance. He was awarded
as the best student of the generation at the Faculty of Economics in Subotica. Upon
completion of graduate studies within the stipulated time, he was employed as an
economic analyst in a software company based in London, where he worked for nine
years as business analyst, specialized in the insurance business. In 2010, he was
appointed assistant professor at the Faculty of Legal and Business Studies in Novi Sad,
where he teaches the “Insurance” and “Insurance Risk Management” courses. He has
participated in projects and scientific conferences at home and abroad. He is the sole
author of two books, co-author of three books and over 120 scientific papers in the field
of risk management, insurance and reinsurance, both at home and abroad. He speaks
English. He lives and works in Novi Sad.
Jelena Demko Rihter
Faculty of Technical Sciences, Novi Sad
jelena.ciric.ns@gmail.com
Jelena Demko Rihter is an Assistant Professor at the Faculty of Technical Sciences,
Department for Industrial Engineering and Management, Novi Sad. She holds M.Sc and
B.Sc in finance and PhD in management accounting. Since 2003 she has been
engaged in the teaching process at the Faculty, the academic courses in Management
Accounting, Financial Management, Investments. She is the author and co-author of
many research and scientific papers on various issues regarding institutional investors,
business financing, clusters, management accounting.
