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What is an Insurance Pool?

Mary McMahon
Updated May 16, 2024
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An insurance pool is a collective pool of assets from multiple insurance companies. Pooling is used as a way of providing high risk insurance. Alone, the companies could not afford the risk of taking on high risk accounts, but by pooling their assets with other companies, they can afford to extend such coverage, and to offer a higher level of coverage. Pooling is a commonly utilized tactic for high risk insurance management.

With an insurance pool, when someone makes a claim to his or her insurance company, the payout comes from the collective assets held in the pool, not from the company's own coffers. The process of pooling distributes the risks of coverage, with most pools being designed to grow over time as the client list grows and companies contribute additional funds, so that they can weather even the largest of claims. In recognition for the services they provide, insurance pools are sometimes offered special incentives by the government which make it advantageous to pool assets.

In some cases, an insurance pool is established by government mandate, to create a resource which will allow high risk candidates to obtain insurance. In other instances, insurance companies voluntarily pool their resources. For example, nuclear insurance is provided through insurance pooling, as no single insurance company is willing to take on the risk of insuring a nuclear facility. Likewise, many states have health insurance pools which are designed to ensure that people who are deemed ineligible for individual coverage can still access health insurance through the insurance pool.

Insurance pooling is often used as a method of providing insurance to people who could not otherwise purchase it. For example, people in California often purchase earthquake insurance through an insurance pool because home insurance in California may specifically exclude earthquakes from the named perils on the policy. Residents of the hurricane-prone American South may also take advantage of insurance pooling to access hurricane and flood insurance because their homeowners' policies do not cover these perils.

Another example of a high risk insurance pool is a pool created to extend environmental liability coverage to industrial manufacturers and producers. Such insurance is required by law in many regions of the world so that if a company causes environmental contamination, it will be paid for. However, this insurance is highly risky for an insurance company, because environmental contamination can be extremely costly to clean up. For this reason, many companies opt to create an insurance pool to provide such coverage.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By SarahSon — On Jun 21, 2012

I live in California so know what it is like to worry about an earthquake destroying your house. If it wasn't for an insurance pool, we probably wouldn't be able to afford earthquake insurance.

Sometimes I get frustrated at the high cost of insurance and feel like I am insurance poor. Whenever I have to make a claim though, I am thankful I have it.

I would also think that an insurance pool would be beneficial for everyone as it helps keep the cost down for those high risk situations. If it wasn't for the insurance pools, the cost of insurance for everybody would probably be even higher than it already is.

By honeybees — On Jun 21, 2012

We live in an area of the country that is known for flooding. Even though it is recommended you have flood insurance, we have to buy this insurance separately. After reading this article, I realize this is probably done through insurance pooling.

Not everybody who lives in our area has flood insurance. The biggest reason is probably the expense of it. We are fortunate that we have not had to use our flood insurance yet, but there are others around us who have not been as lucky.

In high risk situations like this, I can understand why insurance companies will pool their assets like this. It helps spread the risk around when you know the risk is high to begin with.

If they weren't able to pool their assets, they probably wouldn't be able to offer the insurance at all.

By Travelin — On Jun 02, 2011

Before I was employed, I obtained insurance in Oregon through an insurance pool thanks to a pre-existing condition. It was a real lifesaver.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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