What is an 'insurance risk pool'?

An insurance risk pool refers to a collective grouping of individuals whose insurance risks are combined to assess and manage their exposure to losses. When people are pooled together, the insurer can evaluate the overall risk based on shared characteristics, which helps in determining appropriate pricing for insurance premiums. The concept relies on the principle of spreading risk among a larger group, which allows insurers to fund claims and operate efficiently.

By assessing the risk pool as a whole rather than individually, insurers can offer coverage at more manageable rates. This is foundational to how insurance companies establish their premium pricing and manage their financial stability. In summary, the concept emphasizes the collective nature of risk assessment for insurance purposes.