What is the primary concept of risk pooling in insurance?

The primary concept of risk pooling in insurance revolves around the idea of sharing risk among a group of insured individuals. This approach allows the insurance company to aggregate the risks of many individuals, thereby creating a collective risk environment. In this setting, individuals pay premiums to contribute to a shared pool of funds. When a loss occurs, such as a claim for an accident or health issue, the funds from the pool are used to pay for that claim, rather than relying on individual contributions to cover losses.

Risk pooling helps to stabilize insurance costs and make coverage more affordable for everyone involved. It operates on the principle that while any single member of the group may face a loss, the likelihood and financial impact of that loss are spread across the entire group. This makes it possible for individuals to afford coverage that they might not be able to if they had to bear all the risk alone.

The other options focus on aspects of insurance that do not align with the core principle of risk pooling. For instance, maximizing individual insurance claims or eliminating potential insurance losses contradicts the concept of spreading risk. Similarly, limiting premiums for high-risk individuals does not encapsulate the essence of risk pooling, which is fundamentally about collective sharing and management of risk.