Risk Pooling

Risk pooling is a method used by insurance companies to manage uncertainty. By combining the risks of many individuals into one group, they spread the financial impact of unexpected events—such as accidents or health issues—across all members. This way, the cost of large claims from a few people is shared among everyone, helping keep premiums affordable for individuals. Essentially, it leverages collective coverage to reduce variability and make insurance more stable and predictable for all participants.