PAPER

RISK MANAGEMENT
“Risk Mapping/Classification”

Lecturer :

Deky Anwar , SE, M.Si, Ph.D

Compiled by :

M. Tegar Pratama (2010603004)

Afifah Nuraisyah (2020603047)
Desti Fitri Hotimah (2020603057)

STUDY PROGRAM OF SHARIA BANKING

FACULTY OF ECONOMICS AND BUSINESS ISLAM
ISLAMIC STATE UNIVERSITY RADEN FATAH
PALEMBANG
2021
 Foreword

We express our gratitude to the presence of Allah SWT for all the abundance of
His grace and gifts, so that we are still given health and can complete this paper entitled
"Risks in Islamic Banking" on time. I also thank Mr. Deky Anwar,SE,M.Si,Ph.D who
gave this assignment for learning and assessment for this Risk Management course.

We hope that this paper can help increase the knowledge and experience of
readers. We admit that this paper still has many shortcomings and is far from perfect.
Therefore, we expect readers to provide constructive suggestions for the perfection of
this paper.

We realize that the preparation of this paper cannot be separated from the support
of various parties, therefore on this occasion we would like to thank:

1. Mr. Deky Anwar, SE, M.Si, Ph.D, as our lecturer.

2. To our parents who have provided support so that we can complete this paper.
3. And do not forget to our beloved friends who have helped and provided support in
completing this paper.

Palembang, 24 August 2021

Author

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 TABLE OF CONTENTS

page

KATA PENGANTAR ...................................................................................................... i

DAFTAR ISI .................................................................................................................... ii

CHAPTER 1 INTRODUCTION ....................................................................................

1.1 Background ..................................................................................................... 1

1.2 Problem Formulation ....................................................................................... 1

1.3 Purpose of Writing ........................................................................................... 2

CHAPTER II DISCUSSION ..........................................................................................

2.1 Definition of Risk and Risk Management......................................................... 3

2.2 Importance of Risk Management ..................................................................... 5

2.3 Main Functions of Risk Management ............................................................... 5

2.4 Definition of Insurance. ................................................................................... 6

2.5 Basic Principles of Insurance ........................................................................... 7

2.6 Relationship Between Risk and Insurance ........................................................ 8

2.7 How to Classify Risk ....................................................................................... 8

2.8 Insurance as a Transfer of Risk Mechanisms .................................................... 9

2.9 Role and Operations of “Captive” Insurance Companies .................................. 9

2.10 Position of Risk Management and Cooperation with Other Departments .......... 9

CHAPTER III CLOSING .............................................................................................

3.1 Conclusion....................................................................................................... 10

3.3 Bibliography .................................................................................................... 11

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 CHAPTER I
INTRODUCTION

1.1 Background
Risk management is one of the important elements in running a company's business
because the growing world of the company and the increasing complexity of company
activities have resulted in an increase in the level of risk faced by the company. The main
objective of implementing risk management is to protect the company against losses that
may arise. Corporate institutions manage risk by balancing business strategy with risk
management so that the company will get optimal results from its operations.
We must be able to find potential losses that may occur and find ways to deal with
these risks. The business world is not free from uncertainty. Uncertainty in the business
world will lead to business risk. The company plans to intensify the promotion of its
products in the hope that sales can increase. With an in-depth analysis, it is estimated that
sales after the massive promotion can increase by as much as 20%. But in reality sales can
only increase 10%. This is one form of risk that occurs in the business world. Risk in
business cannot be ignored. Companies need to analyze the possibility of potential losses in
their business and then evaluate and find ways to overcome them.
Thus, it is hoped that the business he undertakes can be successful in achieving his
goals with ease. Risk is something that will definitely happen when we take an action. Risk
is a variety of possibilities that occur in a certain period. Risk is often associated with loss.
So risk is uncertainty that might give birth to losses or the opportunity for something bad to
happen. Every company organization always bears risk. Risks, business, work accidents,
natural disasters, robbery, and theft, bankruptcy are some examples of risks that are common
in various companies.

1.2 Problem Formulation

1. What is meant by Risk and Risk Management?
2. How important is Risk Management?
3. What are the main functions of Risk Management?
4. What is the insurance ?
5. What are the basic principles of insurance?
6. How is the relationship between Risk Management and Insurance?

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1.3 Goal Writing
1. To know Understanding Risks and Risk Management
2. To determine the importance of Risk Management
3. To mengetahuifungsi principal Risk Management
4. To mengetahuiPengertian Insurance
5. For mengetahuiPrinsipDasar Insurance
6. For mengetahuihubungan between Risk Management and Insurance.

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CHAPTER II
DISCUSSION

2.1 Definition of Risk and Risk Management

Risk is an integral part of human life, there is the saying goes there is no life without
risk. Risk can be interpreted as a form of uncertainty about a situation that will occur later
(future) with decisions made based on various considerations at this time. Basically, risk
cannot be avoided from the company's business activities, so risk management is needed to
overcome this problem. The benefits of companies implementing risk management include
(Lam, 2007: 6) providing a role in risk management to company managers, considering that
company managers have full access to information and support from risk management
professionals.
According to the Indonesian Wikipedia, risk management is a structured
approach/methodology in managing uncertainty related to threats; a series of human
activities including: risk assessment, development of strategies to manage it and risk
mitigation using resource empowerment/management. Strategies that can be taken include
transferring risks to other parties, avoiding risks, reducing the negative effects of risks, and
accommodating some or all of the consequences of certain risks. Traditional risk
management focuses on risks arising from physical or legal causes (such as natural disasters
or fires, deaths, and lawsuits).
According to Vibiznews.com, risk management is a process of identifying,
measuring risks, and forming strategies to manage them through available resources.
Strategies that can be used include transferring risks to other parties, avoiding risks,
reducing the adverse effects of risks and accepting part or all of the consequences of certain
risks. Meanwhile, according to COSO, risk management can be defined as "a process,
effected by an entity's board of directors, management and other personnel, applied in
strategy setting and across the enterprise, designed to identify potential events that may
affect the entity, manage risk to be within its risk appetite, and provide reasonable
assurance regarding the achievement of entity objectives.
Risk management is an important part of the management strategy of all companies.
The process by which an organization according to its methods can show the risks that occur
in an activity towards success in each activity of all activities. The focus of good risk
management is the identification and ways of dealing with risks. The goal to add maximum

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 value continuous (sustainable) organization. The main objective is to understand the
potential upside and downside of all the factors that can have an impact on the organization.
Risk management increases the likelihood of success, reduces the likelihood of
failure and uncertainty in leading the organization's overall goals. Risk management should
be ongoing and develop processes that work within the organization's overall strategy and
strategy in implementing it. Risk management should be aimed at tackling a problem in
accordance with the methods used in carrying out activities in an organization in the past,
present and future. Risk management should be integrated into the organizational culture
with effective policies and programmed to be led by several senior management. Risk
management must be translated as a strategy in technical and operational objectives,
assignment of duties and responsibilities and the ability to respond as a whole in an
organization, where every manager and employee views risk management as part of the job
description. Risk management supports accountability (openness), performance
measurement and rewards, promotes operational efficiency at all levels. The forms of risk
we need to know are:
a. Pure Risk, is a risk that results in only 2 kinds: loss or break even, for example theft,
accident or fire.
b. Speculative risk is a risk that results in 3 types: loss, profit or break even, an example
is gambling.
c. Particular Risks are risks that originate from individuals and their impacts are local, for
example, plane crashes, car crashes.
d. Fundamental risks are risks that do not originate with individuals and have far-
reaching impacts, for example, hurricanes, earthquakes, floods and hurricanes.

2.2 The Importance of Risk Management

In general, there are six objectives ofrisk managementin a company or business entity,
including:
1. Protecting the Company
Providing protection to the company from significant levels of risk that could hinder the
process of achieving company goals.
2. Assist in Framework Development
Assist in the process of creating a consistent risk management framework for the risks
that exist in business processes and functions within a company.
3. Encouraging Management to Be Proactive

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 Encouraging management to act proactively in reducing potential risks, and making risk
management a source of competitive advantage and company performance.
4. As a Warning to Be Careful
Encouraging all individuals in the company to act prudently in dealing with company
risks in order to achieve the desired goals together.
2. Improving Company Performance
Help improve company performance by providing information on the level of risk
mentioned in the risk map. It is also useful in developing strategies and
improvingprocessesrisk managementon an ongoing basis.
3. Risk Management Socialization
Build individual and management capabilities to disseminate understanding about risk
and the importance ofrisk management.

2.3 Main Functions of Risk Management

1. Finding Potential Losses
It means trying to find/identify all risks faced by the company
2. Evaluating Potential Losses
This means evaluating and assessing all potential losses faced by the company
3. Choosing the right technique/method or determining a combination of techniques that
appropriate to cope with losses
Basically there are 4 (four) ways that can be used to cope with risks, namely: reducing the
chance of loss, retention, insuring and avoiding. Where the task of the Risk Manager is to
choose one of the most appropriate ways to cope with a risk or choose a combination of the
most appropriate ways to cope with risk.

2.4 Definition of Insurance

Insurance is a form of risk control that is carried out by transferring/transferring risk
from one party to another, in this case the insurance company. What is the meaning of
insurance? According to Article 246 of the KUHD, it is stated that "insurance or coverage is
an agreement by which an insurer binds himself to an insured, by receiving a premium, to
reimburse him for a damage or loss of expected profit that he may suffer due to an uncertain
event." . Another definition of insurance is a transfer of risk from the first party to another
party. In the delegation, it is controlled by the rules of law and the application of principles
and teachings that are universally adopted by the first party and the other party.

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 From an economic point of view, insurance means a collection of funds that can be
used to cover or compensate people who suffer losses. What are the benefits of insurance?
Apart from being a form of risk control (financially), insurance also has various benefits
which are classified into: main function, secondary function and additional function. The
main function of insurance is to transfer risk, collect funds and balance premiums. The
secondary function of insurance is to stimulate business growth, prevent losses, control
losses, have social benefits and as savings. Meanwhile, the additional function of insurance
is as an investment fund and invisible earnings.
When someone transfers their risk to an insurance company as an insurer, the next
question is, can all risks be insured? Not all risks can be insured.
Risks that can be insured are:
1. Risks that can be measured in money.
2. Homogeneous risk (the same risk and pretty much covered by insurance).
3. Pure risk (this risk is not profitable).
4. Particular risk (risk from individual sources).
5. The risk that occurs suddenly (accidental) is not because it was planned, but purely
because, for example, death due to an accident.
6. Insurable interest means that the insured has an interest in the object of the insured.

2.5 Basic Principles of Insurance

In insurance there are 6 basic principles that must be met:
a. Insurable interest The
right to insure, which arises from a financial relationship, between the insured and the
insured and is legally recognized.
b. Utmost good faith The
act of disclosing accurately and completely, all material facts about something to be
insured, whether requested or not.
c. Proximate cause
is an active, efficient cause that creates a chain of events that gives rise to an effect
without the intervention of someone starting and actively from a new and independent
source.
d. Indemnity
A mechanism whereby the insurer provides financial compensation in an attempt to
place the insured in the financial position he/she has shortly before the loss occurs.
e. Subrogation
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 Transfer of claim rights from the insured to the insurer after the claim is paid.
f. Contribution
is the right of the insurer to invite other insurers who share the same, but not necessarily
the same obligation to the insured to participate in providing indemnity.

2.6 Relationship between Risk and Insurance The

relationship between risk and insurance is a direct, substantial and strategic
relationship. The main motivation for people to buy insurance is because of the existence of
risk which is full of uncertainty. Insurance protection is one of the efficient means of
controlling risk financially through a risk transfer mechanism to insurance (Risk Transfer
Mechanism). The existing relationship is for insurable risks that have a special character.
Risk implies some form of uncertainty about an outcome in a particular situation in the
future and tends to be undesirable. In contrast to the word chance, which implies doubt
about an outcome in the future, but is generally pleasant or favorable.

2.7 Ways to Classify Risks

The focus of risk classification when viewed from aspects related to the insurance business
consists of:
1. Financial and Non-Financial Risks
This classification relates to the consequences of the occurrence of an event
(outcomes). Financial means that the consequences can be measured in money (fire,
theft). Non-financial, the consequences cannot be measured in money because it
involves feelings (emotions), for example due to choosing a career, food menu, and so
on.
2. Pure and Speculative
Risk Pure risk can result in a loss (loss) or no loss (breakevent), no gain (gain). As a
result, there are 3 possibilities for speculative risk: loss, not loss or gain. Examples
such as in investments (stocks, foreign exchange, etc.)
3. Fundamental and Particular
Risks Fundamental risks, events that cause losses beyond human ability to control, and
the consequences can also be very broad (catastrophic). For example the risk of war,
political intervention, social change, natural disasters, etc. Particular risk, the cause of
loss is still within the limits of human ability to control it and the consequences of the
damage (severity) can still be controlled. For example, fire, theft, traffic accidents, etc.

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 From the three classifications, those concerning the insurance business are pure risk,
financial risk and particular risk.

2.8 Insurance as a Risk Transfer Mechanism

From the aspect of risk management, insurance can be regarded as one of the
efficient means for controlling risk financially. For the public or insurance customers, by
controlling risk to insurance there is a change or exchange of budget uncertainty to deal with
risks, there is certainty that with a definite insurance premium budget; it is predictable that
compensation from insurance will occur if there is actually a risk that is within the
provisions of the insurance policy.

2.9 Role and operations of ”Captive”

insurance companies A captive insurance company is an insurance company that
bears the burden of risk transferred by other companies that are still in their own group, both
nationally and internationally. In operations, especially in the field of marketing/captive
insurance work, it is relatively easy and the cost is also relatively cheaper because there is a
tendency to have to go to the relevant captive insurance company (compulsory). Captive
insurance premiums are also relatively lower because there are almost no competitors and
portfolio predictions can be forecasted in groups or collectively/packages. The weakness is
that if the Holding Company that supplies insurance orders collapses, the captive insurance
company can also collapse.

2.10 Position of Risk Management, and Cooperation with Other Departments

In Indonesia at this time it can be said that it is still very rare for companies to have
managers or sections that specifically deal with overall risk management faced by
companies. There is generally only an Insurance Manager, whose function is only to deal
with issues related to insurance companies, where the company establishes an insurance
relationship, which includes, among others: taking care of closing insurance contracts,
taking care of compensation in case of peril and so on. The position of this manager is
generally only at the level of Section Head (lower level manager).
In developed countries, especially in the United States, large companies generally
have a Risk Manager, with various titles such as: Risk Manager, Insurance Manager, Risk
Director and so on, whose position is generally at the level of "Middle level Manager" .
Their duties generally include: identifying and measuring loss from exposures,
resolving insurance claims, planning and managing labor insurance, participating in loss
control and work safety. Thus they are an important part of the company's management
team.
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 A Risk Manager does not work in "isolation", meaning that in carrying out activities
related to risk management he does not work alone. The main task of the Risk Manager is to
identify and formulate policies in risk management. While the
implementation/implementation of the policy is mostly left to the respective
departments/sections concerned. For example: the implementation of risk management in
the production sector is left to the Production Manager, in the financial sector to the Finance
Manager, in the personnel field to the Personnel Manager and so on.
So in the implementation of risk management, the Risk Manager needs to work in
harmony with the relevant departments/parts. The need for such cooperation can be
analyzed through the activities of the departments/sections related to risk management,

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CHAPTER III
CLOSING

3.1 Conclusion

Risk can be interpreted as a form of uncertainty about a situation that will occur later
(future) with decisions made based on various considerations at this time . Basically risk
cannot be avoided from the company's business activities, so risk management is needed to
overcome this problem. Risk management is a structured approach/methodology in
managing uncertainty related to threats; a series of human activities including: risk
assessment, development of strategies to manage it and risk mitigation using resource
empowerment/management.
Insurance is a form of risk control that is carried out by transferring/transferring risk
from one party to another, in this case the insurance company. What is the meaning of
insurance? According to Article 246 of the KUHD, it is stated that "insurance or coverage is
an agreement by which an insurer binds himself to an insured, by receiving a premium, to
reimburse him for a damage or loss of expected profit that he may suffer due to an uncertain
event." . Another definition of insurance is a transfer of risk from the first party to another
party. In the delegation, it is controlled by the rules of law and the application of principles
and teachings that are universally adopted by the first party and other parties.
The relationship between risk and insurance is a direct, substantial and strategic one.
The main motivation for people to buy insurance is because of the existence of risk which is
full of uncertainty. Insurance protection is one of the efficient means of controlling risk
financially through a risk transfer mechanism to insurance (Risk Transfer Mechanism). The
existing relationship is for insurable risks thathaveaspecialcharacter.

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 REFERENCES

http://mochyusuf13.blogspot.com/2013/11/function-manajemen-risk.html
http://munawarkasan.wordpress.com/2012/03/24/urgensi-penerapan-manajemen-risiko-di-
industri -insurance/
http://www.munawarkasan.com/index.php/manajemen-risk/42-urgensi-penerapan-manajemen-
risiko-di-industri-insurance

http://www.panfic.com/id/insurance- knowledge/understanding-insurance-dan-risk/

https://managemenresiko.wordpress.com/managing-risk/

Sumani. 2009, Manajemen Resiko, Mojokerto : Insan Global.

Mulyawar Setia, 2015, Manajemen Resiko, Bandung : CV Pustaka Setia

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