GENERAL INSURANCE UNDERWRITING - DEFINITION OF RISK TRANSFER AND RISK POOLING

Risk transfer: Risk is transferred equitably among the group of individuals who are exposed to similar kinds of risk, in exchange for a small contribution called ‘premium’. The underlying principle is that, in a group, only few individuals (and not all) would sustain losses due to the occurrence of an uncertain event.

Pooling of Risk: Insurance is created when people pool their contributions to create a large enough common fund so as to protect themselves from the effects of a loss which may in turn randomly affect one or a few who have contributed to the pool. Whether the loss they are attempting to protect themselves from is loss of life, disability, assets, or whatever, the basic concept remains the same.