The Concept of Risk Pooling
• All insurance companies spread the risk among a large number of people - the pool - to make premiums small in comparison with the coverage offered.
• Insurance companies correlate data over a period of time to estimate fairly accurately the total amount they will have to pay if they insure a particular group, as well as the rates they will have to charge each member of the group so they can make the necessary payment and still show a profit.
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