Thursday, September 6, 2018

Risk management and Insurance

Risk management and Insurance


1.    UNDERSTANDING THE RISK

a) risk is a variation of the outcomes that could occur during a specific time period  (Arthur Williams and Richard, m. H)

b) risk is the uncertainty that may bore the loss event (a. Abas Salim)

c) risk is the uncertainty over the occurrence of an event (Soekarto)

d) Risks are the dissemination/deviations from the actual results expected results (Herman Darmawi)

e) risk is the probability of a different result with the expected (Herman Darmawi)

2. All kinds of risks according to their nature:
a.     risk of unintentional (pure risk) is the risk that if there is a sure cause of occurrence of harm and without intentional, such as the risk of catastrophic fire occur, lam, heft, etc.

b. the deliberate Risk (speculative risk) is the risk of accidentally inflicted by those concerned, so that the occurrence of uncertainty gave him the advantage, for example, the risk of the debts, gambling, trade futures (hedging), etc.

c. fundamental Risk is the risk that the cause cannot be delegated to a person and who suffer from not just one or a few people, but a lot of people, such as floods, hurricanes, etc.

d. Special Risk is the risk that is sourced on the events and generally easy known causes, such as ship aground, the aircraft crashed car, collision, etc.

e. dynamic Risk is the risk arising due to the development and progress in society (Dynamics) Economics, science and technology, such as the financial risk, the risk of space flight.

According to can-whether, the risk is transferred to the other party are distinguished into:

a. the risks can be transferred to another party, charged with an object that will be exposed to the risk to the insurance company, by paying a certain amount of insurance premiums, so that all losses be dependents (moved) to the company insurance.

b. risks that cannot be transferred to another party (cannot be insured); generally includes all kinds of speculative risk.

According to sources/causes of the incidence, risk can be distinguished into:

a. internal Risk i.e. the risk that comes from within the company itself

Example: damage to assets due to the behavior of its own employees, work accident,
error management, etc.

b. external Risk i.e. the risk that comes from outside the company
Example: theft, fraud, competition, price fluctuations, changes in government policy,
etc.

The TERM "important risk management

a. the Peril is the event or events that give rise to a loss. For example fire, theft, accident.

b. Hazard is the circumstances and conditions that magnifies the possibility of peril. Example: slippery roads, sharp turns. There are several kinds of type of hazard:

a) Physical Hazard is the circumstances and conditions that enlarge possibilities occur peril, sourced from the physical characteristics and the object, neither of which could be supervised/known or not. For example, the road slick, sharp turns that magnify the likelihood of the occurrence of an accident, try to overcome with the installation of traffic signs on the premises.

b) Moral Hazard is the State or conditions someone enlarges the possibility of the occurrence of the peril, which is predicated on the mental attitude, Outlook on life, habits of the person concerned. Example of a forgetful will enlarge the possibility of accident/loss that befalls that person. 

c) Moral Hazard is the State and condition of the possibility of enlarging one's peril, which is predicated on the concerned person's heart feeling, which is generally due to the influence of a particular State. Example:
     
People who have been insuring himself, his car and have been feeling proficient driver, then feel secure against the risk, he was careless in driving his car. Circumstances and this condition will certainly enlarge the possibility of accidents which will overwrite it.

d) Legal Hazard is the Act of ignoring regulations or legislation in force (breaking the law), so as to enlarge the possibility of peril. For example, the wisdom company that violates/doesn't meet the law on Work Safety will enlarge the possibility of accidents. 
c. Exposure is the State or object containing the possibility of peril, so it is affected by circumstances that become the object and attempts to cope with risks, especially in the area of coverage.
d. the law of large numbers (The Law of The Large Number) is the law relating to the magnitude of forecasting the possibility of peril. Where "the greater the amount of exposure that is predicted will be more careful forecasting results obtained".
e. risk management is the exercise of management functions in the response ratio, especially the risks faced by the organization/company, the family and the community. So it includes the activities of planning, organizing, drafting, lead/coordinate and supervise (including evaluating) risk mitigation program.


5. risk identification methods:

Identifying risks there are several methods that can be used, among other things:
a. use the list of questions or questionnaires to analyze risk, which from the answers to the questions are expected to be able to provide clues about the dynamics of specific information, which can be designed systematically wealth is concerned about the risks as well as the operation of the company.
b. Using financial statements, i.e., by analyzing the balance sheet, operating reports and other supporting records, will be known/identified all the wealth, debt-receivable, etc.
c. creating a flow-chart flow of goods ranging from raw materials to finished goods to become so knowable risks faced at each stage of the flow.
d. With the examination/inspection directly on the spot, that is by holding an examination directly at the place of the operation/activity of the company.
e. Hold interactions with departments/sections within the company. As for the ways in which it can be reached:
• Made a visit to the Department/Risk Manager parts can grab/fosters mutual understanding between the two sides.
• Receive, evaluate, monitor and respond to reports of departments/sections.
f. Hold interactions with outside parties i.e. held relations with individuals or other companies, especially those that can assist companies in managing disaster risks.
g. Conducting an analysis of the contracts have been made with other parties.
h. creating and analyzing the records/statistics about all kinds of losses that has ever suffered.
i. held an environmental analysis, which is very necessary to know the conditions that affect the incidence of potential risks, such as consumers, suppliers, suppliers, competitors, Government desa muan (makers of regulation/legislation).

6  . Bank Indonesia issued Regulation No. 5/8/PBI/2003 regarding the application of risk management for commercial banks in Indonesia. Business risks faced by financial intermediation
1  . Credit risk credit risk, generally defined as the possibility of losses incurred due to the failure of the debtor or counter-party for the benevolence of the Bank. Credit risk arising from the implementation of the financial intermediation function and is part of the everyday activities of the Bank.
2  . The market risk market risk is the risk, which arises due to the movement of market variables of portfolios owned by the Bank, that can harm the Bank. Variables include interest rate and market exchange rates, including the derivation of these two types of market risk. Market risk, among others, present on the activity of Treasury and investments, financing and funding activities, as well as trade finance activities.
3  . Operational risk is the risk arising among others due to insufficiency or not proper functioning of the internal process, human error, system failure, or external problems that affect the operations of the Bank. Operational risk can have an impact on financial losses directly or indirectly in the form of potential losses or loss of profit opportunity.
4 . Liquidity risk is the uncertainty or the possibility of the company can not meet the payment of short-term or unexpected expenses.
5 . Legal risk is the possibility of deviation results because the company didn't comply with regulations and norms in force. In the neighborhood known as banking risk compliance.
6 . Reputational risk relates to the potential destruction of the good name of the company because of the company's inability to manage the performance and communications with external parties.

7 . the fiduciary risks will arise in financial intermediation in its efforts to provide services by acting as a trustee, either individual business entities.
8 . the risk of competition, competition between financial intermediation focused more on its ability to provide services to clients in both the professional and because the products offered by financial intermediation nearly entirely are homogeneous.

7  . risk measurement methods:
•  Measurement of the frequency of Losses
   Measurement of the frequency of potential losses is untukmengetahui how many times a kind of peril can override a type of object that can be exposed to the peril for a certain period of time, which is generally one year.
• Measurement of Kegawatan Loss
    The measurement of potential loss of kegawatan is to know the dimensions of some magnitude value of the loss, which was attributed to its effect on the company's condition, especially the financial conditions.
8 . The approach to tackling the risks:
a . Risk Retention is the company took its own risk appears (hold the risk). If the risk actually occurs, the company should provide funds for therisk.  
                                                                       
      Tools/methods/ways that can be used to this approach, namely:
-    Reserve Fund, the company set aside specific funds periodically dedicated to financing the losses resulting from such risks.

-Self-insurance and captive insurers

 Self-insurance, management of the reserve fund could be upgraded again into a kind of insurance for the company's own internal. Self-insurance could do if (1) the exposure in the company of its economic scale is large enough that it could be achieved, (2) the risk can be predicted well.

Captive insurers, fund management backup made with the insurance subsidiary as part of the company. There are several reasons captive insurers being interesting, namely (1) in some countries, tax treatment such that it is profitable to make captive insurers (tax paid could be smaller), (2) a contract of insurance be more flexible because practical to deal with the internal party.

b. the Risk Transfer is the company moving the risk to another party (transferring the risk to another party) that usually have a greater ability to control the risk, either because of better economies of scale so that it can be mendiversifikasikan better or risk having the skills to do better risk management.

    Tools/methods/ways that can be used to this approach, namely:
- Insurance, contract promise between the insured (insured) and the insurance company (insurer), where the insurer is willing to provide compensation for the losses experienced by the insured party and the assurance party (the insurer) gets premium insurance in return.
 - Hedging or hedging, the company transferring the risk to another party who is better able to manage risk better through transactions of financial instruments.
  -Incorporated or form a limited liability company is an alternative risk transfer because the liability of shareholders in a limited liability company limited capital deposited where the liability will not come to the personal wealth.

4. RISK MANAGEMENT PROCESS
STEP-STEP RISK MANAGEMENT PROCESS:
 
1. Identify in advance the objectives/goals to be achieved through risk management. For example, a steady income, peace of heart, and so on.

2. Identify the possibilities of occurrence of loss/peril or identify risks faced.
3. Evaluate and measure the magnitude of the potential losses, which are evaluated and measured are:
a. magnitude of the chance or possibility of peril that will occur during a certain period (frequency).
b. the magnitude of the result of such damages against the company's financial condition/family (kegawatannya)
c. the ability to predict the magnitude of losses will obviously arise.
4. Find a way or a combination of the ways that the best, most appropriate, and most economical to resolve problems that arise due to the occurrence of a peril. These efforts include: • to Avoid the possibility of peril
• Reduces the chance of occurrence of a peril
• Move the potential loss to the other party (insuring)
• Accept and shoulder the losses incurred (meretensi)
5. Coordinate and implement the decisions that have been taken to cope with the risk. For example, make a decent protection against work accidents, contact, select and complete the transfer of risk to the insurance company.
6. Administers, monitors, and evaluates all measures or strategies have taken in tackling the risks. This is very important especially for basic risk management wisdom in the future.

UTS APRIL 7, 2009
1. a). The difference in risk with uncertainty:
More risk to something that has always been associated with the possibility of something that does not harm allegedly/unwanted. Where this risk, has characteristics:
-is the uncertainty over the occurrence of an event
-It is a case of uncertainty will cause any harm
While the uncertainty is something that raises the risk (risk arising due to uncertainty), meaning uncertainty is a condition that causes the incidence of risk because of the result in doubt someone regarding his ability to extrapolate results-results that will occur in the future.
Conditions uncertain due to among other things:
The time lag between the planning is an activity that ends where the more produce long/lag time greater ketidakpastiannya.
• The limitations of the available information are required in the preparation of the plan.
• Limitations of knowledge/ability/technical decision-making of the Planner

b). Risk Classification consists of:
-the risk of unintentional (pure risk), deliberate, risk (the risk of speculative), risk, fundamental, special risk, risk, dynamic
From the above risk classification, the risks can be insured as follows: o the pure risk, because this risk occurs without deliberate e.g., the risk of fire, natural disaster, theft, embezzlement, intrusions, and so on.
o special risks, where the risk of these sourced events are independent and generally easy known causes, such as ship aground, the aircraft dropped, the collision of a car, and so on.
While the risks can be insured: o risk speculative, because the risk is intentionally inflicted by a concerned, so that the occurrence of uncertainty gave him the advantage, for example the risk of debt-receivable, oerjudian, trade futures, and so on
o the fundamental risk because this risk can not be delegated to someone and who suffer from not just one or a few people, but many people, such floods, hurricanes, and so on.
o dynamic risk, due to the risks posed by the development and advancement of society (Dynamics) Economics, science and technology, such as the risk of wear and tear, the risk of space flight.

2. The difference between physical and moral hazard: hazard
Physical hazard more to the circumstances and conditions that magnifies the likelihood of the occurrence of the peril, which is sourced from the physical characteristics of objects, both of which can be monitored/known or not. While the moral hazard of the mental attitude, Outlook on life, habits of the person concerned. So is a personal character someone enlarges the possibility of peril.

3. the Principal Functions of risk management:

    Risk management functions at the point include:
1 Includes potential Losses).
This means that attempting to find/identify all pure risk faced by companies, which include:
a. physical damage to the property of the company.
b. loss of income or loss other akin disruption of the operations of the company.
c. Losses due to lawsuits from other parties.
d. Losses – losses incurred because of the fraud, other criminal actions, not jujurnya employees and so on.
e. Losses – losses incurred due to key employees (keymen) died, sick or became disabled
2 Evaluating potential losses).                                                                                                                     
It means doing the evaluation and assessment of all potential losses faced by the company. Evaluation and assessment will include an estimate of about:
a. magnitude of the likely frequency of occurrence of loss means that estimates probability of losses during a given period (usually 1 year).
b. the magnitude of kegawatan of each loss, it means assessing the magnitude of the losses suffered, which is usually associated with the magnitude of the influence of such losses, especially against the financial condition of the company.
3. choose engineering)/the right way or specify a combination of the right techniques in order to cope with the loss
At the point there are 4 ways that can be used to cope with risks, i.e. reduces the chance of occurrence of loss, meretensi, insuring, and avoid. Where the task of risk managers is to choose one of a most appropriate way to tackle a risk or choose a combination of the ways most appropriate for tackling the risks.

The Frequency Of The Activities Of The Departments Of The Loss Mitigation
1 low low retention/Control
2 high low retention/Insurance/Control
3 low high Insurance/Control
4 High Total Avoid
4. KERUGIAN POTENTIAL

The list of potential losses is also often referred to as checklist. From that list will be known what and how a loss occurs that might befall his business, so it can be used as a basis for determining the risk control policies.
Classification Of Loss Potential:
The entire potential losses can override any business on anyway may be classified into:
a. losses on the property (the property 30 minutes) which includes:
1. direct losses can be attributed to the cost of the replacement or repair of the affected property against the peril (burning shed, the equipment that was stolen). This type of loss is called direct losses.
2. The losses that cannot be directly linked to the peril that occurs, that losses caused by the destruction of the goods affected by the peril. This type of loss is called indirect losses.
3. Losses on revenue, for example as a result of not the functioning of the means of production, because exposed to peril.
b. damages liability to another party--Was a loss in the form of an obligation to the other party who feels aggrieved as a result of the fault of his business.
c. Loss of personnel (personnel losses/30)--loss due to the peril that befell the personnel or people who are members of the company's employees (including his family).

Liability for the loss of personnel:
Responsibility against loss of personnel can be divided into two categories, namely:
a. the personnel Losses directly related to the activity of the company
Corporate responsibility towards the personnel losses directly related to the activity of the company, in fact, is the responsibility of the employer against employees who carry out work that he will be loaded.
b. Loss of personnel that are not directly related to the activity of the company
Employees also face the risk of potential losses from the declining ability to earn income and increased spending-unexpected expenses as a result of the employee's death, declining health, idle, or because old age. These issues are usually resolved by holding savings for old age.
Responsibility for losses of wealth:
The subject matter includes:
a. ownership: ownership of the property is sole ownership, then the pemiliknyalah will suffer a loss due to such peril.
b. loans with a guarantee: If the pledged property damaged because it is exposed to the peril, then such losses be not terbayarnya some pitanga, although the lender not the owner of the property.
c. Sale of society: that depends on the terms specified in the contract of sale and stated purpose.
d. Tenancy: generally tenants no liable for any loss of property leased affected peril, with the exception of damage to property caused by the carelessness of the tenant, the contract specified that the property must be returned with good condition upon tenant change deliberately property to get a particular benefit.
e. Bailments: responsibility against loss caused by a peril depending on the content of the Treaty of bailmentnya.
f. Easement: If there are losses on the utilization of property, be the responsibility of the person utilizing the (wearer).
g. license: the loss is the responsibility of the owner or according to an agreement.

Responsibility for any other party:
A legitimate liability generally can be divided into two types, namely:
a. civil liability/civil liability: legal responsibility for its realization is usually done by one party (the plaintiff) against pohak (defendants) who were convicted. The decision is the ruling form of indemnity to the aggrieved party. The Court decided the matter raised by the party litigants and for the costs of their own.
b. General liability/criminal: where the introduction of this responsibility to the question posed by implementing public officer on behalf of the community/public/State against individuals and business ventures, which allegedly should be responsible for losses that case. The ruling decision fines or imprisonment to be paid/traveled by the suspect.

THE BENEFITS LIST OF POTENTIAL LOSSES
1. For the company: (a) attainment of mnunjang yg after destinations, bkaitn dg pnglolaan basis PD umumny n khususny, risk management, (b) systematic way u/collect info tag Perusahaan "other brain dg aktvtas bisnisny.
2. For risk managers: (a) a reminder of ttg Krugman "interchangeable overwrite bisnsny,, (b) gather information will reply tmpt mnggambarkan, dg, bagmana n what ways business" khushs interchangeable utilized for tackling potential risks faced by the business, wrote, (c) materials comparison in examining the risk mitigation program evaluates dn yg tlh made.

5. RISK MITIGATION
           Efforts to tackle risks should always be performed, so that losses can be avoided or diminimumkan. In accordance with the nature and the object are exposed to risk, there are several ways that can be done for minimising the risk of losses, among others:
a. Conducting prevention and reduction to the possibility of the occurrence of events that result in losses. Example: guarding the machines to avoid accidents.
b. Do retention, meaning that tolerate i.e. let the occurrence of the loss and to prevent disruption of the operation of the company due to the losses provided some funds to overcome. Example: post other expenses in the budget of the company.
c. perform the control of risks.
Example: conduct futures trading to cope with the risks of scarcity and price fluctuations of raw materials/helper needed.
d. Redirect/move the risk to another party, i.e. by way of contracting (insurance) coverage with an insurance company against certain risks, by paying a certain amount of insurance premiums that have been set, so that companies the insurance will indemnify when exactly incurred losses which in accordance with the agreement.

How to control the possibility of potential losses is to find a way or a combination of the ways that the best, most appropriate, and most economical to resolve problems that arise due to the occurrence of a peril. These efforts include: • to Avoid the possibility of peril
• Reduces the chance of occurrence of a peril
• Move the potential loss to the other party (insuring)
• Accept and shoulder the losses incurred (meretensi)

Dr. William Haddon, suggests 10 strategies controlling losses, namely:
1) Prevent the inception of hazard at the first opportunity.
2) reduced the number and magnitude of the hazard. Contohnhya: reduce the speed of the car to avoid an accident.
3) prevents the discharge of hazard if the hazard is formed or if the hazard has been there before. Example: menstrerilkan milk before drinking to prevent infections through milk.
4) change the speed or power of the discharge of the hazard from the source. Example: Split stream into several streams to reduce the flow of the river battle, in order to prevent the occurrence of annihilation riverbanks.
5) separating the object from the source that can destroy it. Example: Make the embankment of the River to avoid flooding.
6) separates the hazard of the object that should be protected with a bulkhead separator. Example: the employee must wear rubber gloves to prevent contracting the disease germ.
7) a relevant basis of quality Change of hazard.  Example: given a path separator line between the opposite direction to reduce the danger of a collision.
8) makes the object more resistant to hazard that would ruin it. Example: immunization for strengthening the body's resistance against disease.
9) counter action to restrain the increasing severity of the damage. Example: installing a retaining embankment surge to prevent damage to the beach from abrasion.
10) Stabilize, rehabilitate and refit the objects affected by the peril. Example: fixing the affected machine peril to prevent damage/note products.

UTS Oct 22, 2007
4. The difference in risk management and insurance
-Risk management is the exercise of management functions in the response ratio, especially the risks faced by the organization/company, the family and the community. So it includes the activities of planning, organizing, drafting, lead/coordinate and supervise (including evaluating) risk mitigation program.
-Insurance is coverage transaction involves two parties, the insured and the insurer. The insurer guarantees the insured party, that he would get a replacement of a loss that may be sustained, as a result of an event that is not necessarily going to happen again or that previously could not be specified when/when the occurrence. As his achievements the insured is required to pay a sum of money to the insurer, the magnitude of the percent of the value of the coverage, commonly referred to as the premium.

 6. Note that from 100 fruit home, possibly burning one House is 37%. The average loss for each fire is USD 1 million.-What is the:
a. the Expected loss of one's home? Answer: Usd 370,000,-(37% x Rp 1jt)
So in case of peril, then the insurance compensation of Rp sebsar membayar harus 1jt. Because the insurers did not feel certain that personal Tersebut terjadi speak menetapkan insurance, then the probability of correct trade sending loss dr Serta menilainya level on expected loss sir Usd 370,000,-
b. When the possibility of burning two homes by 20% how expected lossy?
Expected loss = Rp 400,000 (20% x 2 x Rp 1jt) so that the expected loss for Rp 200,000 sbsr House 1,-.

Risk Management Insurance
1. Emphasizes its work in finding and analyzing the risks of pure
2. The task is just a mere pass judgment against all risk mitigation techniques
3. Pelaksaaan the program requires the cooperation of a number of individuals and parts of the company
4. risk management Decisions have a broader influence/contribution to company operations 1.        Is one way of tackling the risk of a certain pure
2. The task of handling the whole process of transfer of risk
3. Involve the number of people and activities that are smaller
4. Decisions in the field of insurance have a more limited influence

The definition of risk management according to the experts is:
a) according to Smith, 1990 risk management is defined as the process of identification, measurement, and control of the finances of a risk that threatens the assets and earnings of a company or project that may cause damage or loss on the company.
b) according to Clough and Sears, 1994, risk management is defined as a comprehensive approach to deal with all of the events that give rise to a loss.
c) according to William, et. al., p. 27,1995 risk management is also an application of the General management of trying to identify, measure, and deals with the cause and effect of uncertainty on an organization.
d) Dorfman, 1998, p. 9 risk management is a logical process in order to understand exposure to a disadvantage.
e) version of MR. Lecturer, management risk is a process for keeping assets "belonging to and ability to produce financial consequences from dg to minimize the possibility of loss.

The Kind Of "Risk Management
a. operational risk management operational risk management related to technical failures and human error.
b. financial risk management: financial risk management deal with non-payment from clients and an increase in the interest rate.
c. risk management market: dealing with the various types of market risks, such as interest rate risk, the risk of equity, commodity and currency risk.
d. Management of credit risk: with regard to the risks that are associated with the probability of default of a debtor.
e. quantitative risk management: in quantitative risk management, the effort is made to ensure the possibility of adverse circumstances of numerical finance different to handle the level of losses that might occur from the situation.
f. Komiditi risk management: handling the various types of risk komoditas, risk, price risk such as politics, the quantity and cost of risk.
g. Non-profit risk management: this is the process by which enterprise risk management menerapkan risk management services at the non-profit looking for basic
h. Management of currency risk: with regard to the change of currency rates.
i. enterprise risk management: addressing the risks faced by the company in achieving their goals.
j. project: risk management related to certain risks associated with running a project.
k.: integrated risk management integrated risk management refers to the integration of risk data into the company's strategic decision making and take decisions, which take into account the degree of risk tolerance set of departments. In other words, it is the surveillance of the market, credit, and liquidity risk at the same time or simultaneously.
b.        Risk management Teknologi: this is the process of managing the risks associated with implementing new technology.
m. risk management Software: deals with the various types of risk associated with the implementation of the new software.

The Importance Of Risk Management Study
How important it is for people who study risk management can be seen in terms of the other two, namely:
1. A person as a member of the organization/company, especially a Manager will be able to find out the ways/methods appropriate to avoid or reduce the magnitude of the losses suffered, the company as a result of the uncertainty of the occurrence of adverse events (peril).
2. Someone as a person:
a) can become a professional risk manager within a relatively faster than never learn it.
b) can provide a useful contribution to the risk manager of the company where the question became a member.
c) Can get hold of a risk management consultant, insurance agent, intermediary traders, investment advisory, consulting company that has no risk manager and so on.
d) Can become the Manager of a professional risk insurance companies, so that it will further enhance the welfare of society through insurance programs compiled with precision.
e) can be more cautious in arranging his personal life every day.

The Purpose Of Risk Management

1) The goal before the occurrence of the peril

• Things that are economical, for example, efforts to cope with the possibility of losses in the most economical.

• Things are noneconomic, for example, efforts to reduce anxiety

• Risk mitigation Actions are undertaken to fulfill the obligations derived from the third party/parties outside the company.

2) Destination after the peril
• Rescue operations
• Searching efforts so that the company's operations continued after the company exposed to the peril
• Undertakings so that corporate earnings keep flowing, though not entirely, at least enough to cover costs from
• Dress remains the continued growth of business for companies that are doing business development
• Attempt to still be able to do the social responsibility of companies



 

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