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Insurance is a complex mechanism that plays an essential role in every economy. Insurance is a mechanism by which the risk of loss or damage on the part of the insured is transferred to the insurer in exchange for a known amount in advance (premium). Insurance as a social protection mechanism mitigates the effects of exogenous events such as illness, death, and natural disasters. It allows individuals to recover from a sudden accident by relieving or at least limiting the financial burden. The ability to innovate or continuously transform knowledge and ideas into new products, processes, and systems for the benefit of the firm and stakeholders enables firms to secure and maintain a competitive advantage in the marketplace. To motivate employees to be prepared to share knowledge within the organization, the concept of knowledge sharing is a vital component when developing the business model of the company (Jerman, 2020; Ardimento et al., 2013).
The selection of appropriate types of innovations that are analysed below can improve the financial performance of insurance companies and provide a timely response to the needs and desires of the client. The company can introduce a new product with additional functionalities in the insurance industry, such as an additional bonus or benefits (for example, tourist trips abroad). Such innovation can be called product innovation. On the other hand, the company can develop an internal claims handling process or call centre to speed up the delivery process, which can be considered an innovation. The economic effect of innovation can become the starting point for a model for assessing innovation in financial institutions, including insurance companies. Since the institutional arrangements are heavy, the new enterprises encounter difficulties in breaking the institutional elements that prevent the introduction and diffusion of service innovations. This is especially true in the healthcare sector (Wallin, 2017).
Although insurance companies play a crucial role, there are also insurance-related institutions within the sector, such as institutions, to support the implementation of insurance-related operations. Implementing innovative activities in each of these institutions can impact the level of innovation in the entire sector and consequently on economic development. Most insurance companies are focused on improving legacy systems, products, processes, and business models, while not allocating sufficient resources for innovation that could differentiate them in the increasingly present consumer-oriented economy (Deloitte, 2019). Innovation management and digitalisation put pressure on the insurance industry to tailor products and services and simultaneously make them available for use across multiple platforms. Substantially changing the way businesses operate and securing the value of insurance companies becomes a necessity for ensuring financial stability in the long run. Innovation is not immune to the social changes that are primarily caused by the development of humanity through the prism of technological progress and are in itself a variable category.
Frequent changes and updates of regulations in the insurance industry make it constantly relevant as one of the essential pillars for ensuring economic stability. Innovation capacity is a facilitating factor for the rapid introduction of a new product, the adoption of new systems, but also in the face of current competition. Insurance companies need to allocate adequate resources for research in innovation, which could improve the penetration of insurance in the Republic of North Macedonia. To ensure that the planning of the innovation scenario process will be successful, insurance companies need to involve stakeholders such as employees and policyholders in introducing innovation in the organisation and hiring expert consultants.