A risk pool is a group of individuals, organizations, or even insurance companies that combine their financial risks in order to share the costs of large financial losses. This structure is central to how insurance mitigates significant and often unexpected expenses. Participants in the risk pool pay a fee, or premium, to be members. These premiums enable those at lower risk (healthy individuals) to help subsidize the higher costs of those at greater risk (unhealthy individuals).
Low-risk participants benefit from financial protection in the rare event they experience a crisis, while high-risk participants enjoy lower overall costs relative to their higher use of benefits. However, it is crucial that the risk pool remains balanced: if too many high-risk participants join, the resulting expenses can exceed premium revenues and cause the model to collapse.
