Definition - What does Pooling mean?

Pooling is a system in which a large number of people purchase insurance as a group in order to lessen the cost of coverage. Essentially, the members of the pool who are deemed low-risk compensate for the elevated cost of insuring those who are high-risk.

Insuranceopedia explains Pooling

The easiest way to lessen the cost of insurance payouts was to refuse to insure high-risk applicants. The Affordable Care Act, however, has forbidden this practice for health insurers, compelling them to cover applicants with pre-existing conditions.

The insurance tradition has another economic model: pooling. The insured are pooled or categorized according to a given characteristic (age or location, for example). In terms of risk, the are heterogeneous, but by pooling all of their resources, they can acquire a homogeneous policy that will provide affordable coverage even to its high-risk members.

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