http://creativecommons.org/licenses/by-nc-nd/4.0/legalcode https://phaidrabg.bg.ac.rs/o:36290 cobiss:170347529 ISBN: 978-86-403-1879-2 2025 eng University of Belgrade, Faculty of economics and business, Publishing centre Key words: insurance, modernisation The modernisation of insurance is a complex and multidimensional process that includes technological transformation, improvement in risk assessment and prediction, increased cost efficiency, customisation of insurance products and services to meet contemporary customer needs, as well as enhancement of the regulatory framework. This process is driven by changes in the economic, social, and natural environment and is enabled by technological innovations and regulatory reforms. Key economic factors that encourage the modernisation of insurance include: the growth of real income, increased propensity to save, higher returns on insurance premiums, long-term macroeconomic stability, institutional improvements, and accelerated technological development. These factors contribute to creating a stimulating environment for the modernisation of the insurance sector. It is important to emphasise that modernisation is closely linked to the development of insurance. Namely, the factors that drive the growth and expansion of insurance simultaneously influence its modernisation, thereby ensuring greater competitiveness, better customer protection, and a more efficient response to contemporary market challenges. The advancement of the economy increases the real value of income and assets, thereby enhancing both the capacity and the need for insurance services. Growth in real income above the subsistence minimum creates room for an increase in all forms of long-term savings, including insurance services. As the economy grows, the real value of average income reaches a level at which the income elasticity of demand for insurance services exceeds 1. According to the World Bank classification, Serbia is at the upper limit of the middle-income countries, which implies that the average income of citizens falls within the range where the income elasticity of demand for insurance is greater than 1. Similarly, the growth in the real value of assets per capita increases demand for insurance services. The propensity to save, including investment in insurance, increases with rising income but also depends on a number of other factors, such as the return on savings, macroeconomic stability, the quality of institutions, and the population’s value system. An increase in returns on insurance premiums has some influence on the willingness to purchase insurance, although empirical research suggests that this is not a decisive factor in the growth of insurance. The underdevelopment of Serbia’s financial market directs insurance companies toward investments in government securities and other low-yielding assets. Therefore, expanding investment opportunities into higher-yielding assets would stimulate the growth and modernisation of the insurance sector. Sustained macroeconomic stability— primarily low and stable inflation, along with relative exchange rate stability—is essential for insurance, as a form of long-term savings, to successfully transfer income from the present to the future and preserve its real value. Over the past two and a half decades, Serbia has made progress in establishing macroeconomic stability, but strong memories of prolonged high inflation and two episodes of hyperinflation still deter people from long-term saving and reduce demand for insurance services. Innovations in insurance : from traditional to modern market startpage: 131 endpage: 154 application/pdf 433690 bytes Economic preconditions for the modernisation of insurance info:eu-repo/semantics/bookPart Arsić, Milojko