What is it about?
Insurance companies are obliged to pay claims to customers, and customers are obliged to pay premiums. However, in carrying out its obligations to pay claims, the insurance company may incur losses if the number of submitted claims exceeds its reserves. In this study, the risk value of claims from one of the Sharia Insurance companies in Indonesia is calculated. The goals are to anticipate the maximum risk value or limit that may occur and to prepare the minimum reserves that must be owned to avoid bankruptcy in the company. Historical simulation and extreme value theory are used in this research to calculate the Value-at-Risk value.
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Why is it important?
The resulting Value-at-Risk value with the generalized extreme value is larger because it focuses more on the tail behavior of the distribution (extreme values). This research can contribute as a reference to assist Islamic insurance companies in improving their risk management and competitiveness. The results of this study are also useful for regulators in formulating more effective policies to supervise the Islamic insurance industry.
Perspectives
Writing this article was a rewarding journey as it involved collaboration with co-authors with whom I have shared a long-standing interest in Islamic finance and risk management. This study has also garnered attention from practitioners and researchers in the field, paving the way for further exploration and contributions to the development of Sharia-compliant risk measurement frameworks.
Ahmad Fuad Zainuddin
Universitas Prasetiya Mulya
Read the Original
This page is a summary of: Claim risk measurement of Sharia general insurance company using value at risk, January 2024, American Institute of Physics,
DOI: 10.1063/5.0231266.
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