Risk pool

What is a risk pool?

A form of risk management usually practised by insurance companies to mitigate risk. Insurance companies come together to form a common pool, itself used as protection for the companies against catastrophic events, usually natural disasters. They are also used by government agencies for similar purposes.

Where have you heard about risk pools?

The topic has recently been in the headlines in the US, with the Trump administration's plans to replace the Affordable Health Care Act, aka Obamacare, with high risk health pools for those with chronic illnesses and other "uninsurable" individuals.

What you need to know about risk pools...

A very common practice, especially amongst health insurance and car insurance providers. These companies offset the costs of higher-risk customers (who pay higher premiums) with those of the low-risk customers. Lower risk customers often buy insurance because the costs of car insurance, for example, is still less than the cost of paying for damage to a vehicle out of pocket. Bigger insurance pools usually result in lower premiums, which is why health insurance provided by employers is often cheaper.