Life & Health · Chapter 2 · The Nature of Insurance
Risk Pooling (Loss Sharing)
Definition
Spreading the cost of possible losses over a large number of similar (homogeneous) exposure units. Requires: a large number of units, similar risks, accidental/unintentional losses, and independent units.
In plain English
Everyone pays a small premium into a shared pot; the unlucky few draw from it. Grouping similar risks lets the insurer predict the group's losses even though it can't predict any one person's.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
Related terms