Risk Management and Insurance: Strategies for Transportation Companies

This report examines risk management strategies and schemes within the context of a transportation company, Channel Maldives Limited, which has experienced significant compensation costs. The assignment addresses various types of risks inherent in the transportation industry, including weather-related issues, theft, accidents, and delays. It explores the application of Shari'ah-compliant insurance principles, specifically Takaful, highlighting key concepts such as insurable interest, utmost good faith, and the elimination of uncertainty. The report proposes several strategies and schemes to mitigate risks, such as using alternative routes, modified containers, and adequate insurance coverage. It also addresses challenges in implementing these strategies, including gaining organizational support and adapting to new risk management processes. The report references key academic sources to support its findings and recommendations.

Risk Management
Strategies and
Schemes
Name of the Student:
Name of the University:
Author’s Note:

Briefing of the Issue
• Channel Maldives Limited is a transportation company that
is in operations since the last four years
• Audit was conducted that revealed the company has paid a
lot of amounts as compensation during its short journey
• The company plans to develop a second year plan and
generate justifiable profits
• The company also aims to minimize the losses and propose
schemes to the Board of Directors

Types of Risks in Transportation
• Weather and climate
• Theft, pilferage
• Mishandling
• Accidents
• Natural calamities
• Delay in transportation

Shari’ah Prohibition of Conventional
Insurance
Insurance and Gharar
• Uncertainty in the consequence as
well as existence (Aven, 2016)
• Uncertainty in the result of the
give-and-take
• Uncertainty concerning the
contract period
• Uncertainty in the receipt of
reimbursement (Aven, 2016)
Insurance and Riba
• Riba in deferred premium
payments
• Riba in the commercial
insurance contract (Aven,
2016)
• Riba and the investments of
the commercial insurance
company

Principles of Takaful to be applied to
Takaful
• Insurable Interest
• Utmost good faith
• Indemnity
• Contribution
• Subrogation
• Proximate cause

Principles of Takaful
• Members must cooperate amongst each other
• Invest in Shari’ah compliant funds (Ho et al., 2015)
• Divide losses and liabilities through a pooling
system
• Each member must pay the subscription fee (Ayinde
& Echchabi, 2012)
• Elimination of uncertainty in respect of
compensation

Risk Management and Hazards
• Risk of the consignment being delayed
• Risk of natural calamities and disruptions
• Risk of hazardous material
• Risk of cross-border tariffs
• Third party provider unqualified
• Product damage and contamination

Strategies and Schemes
• Use of alternative
routes
• Use of modified
containers
• Use of low risk
transportation models
• Amendment of
chemical as well as
physical properties

Strategies and Schemes (contd.)
• Ensure suitable controls
in place (Ho et al., 2015)
• Insurance covers must be
adequate
• Review the regulations
prior to the shipment
• Weekly meetings to
analyze the issues and
concerns

Challenges
• Lack of enthusiasm to assent
and address the concerns that
risk management will detect
• Attainment of organizational
support at all levels for risk
management
• Developing as well as funding
organizational expertise

Challenges (contd.)
• Implementing a new
process for risk
management (Aris,
Taspir & Talib, 2012)
• Exertion in applying
risk allocation
substitutes
• Evolving the prevailing
organizational culture

Reference List
Aris, N. A., Tapsir, R., & Talib, M. K. B. A. (2012). Risk and risk management of
takaful industry. Journal of Global Business and Economics, 4(1), 29-39.
Aven, T. (2016). Risk assessment and risk management: Review of recent advances
on their foundation. European Journal of Operational Research, 253(1), 1-13.
Ayinde, L. O., & Echchabi, A. (2012). Perception and adoption of Islamic insurance
in Malaysia: an empirical study. World Applied Sciences Journal, 20(3), 407-415.
Ho, W., Zheng, T., Yildiz, H., & Talluri, S. (2015). Supply chain risk management: a
literature review. International Journal of Production Research, 53(16), 5031-5069.