Which statement about pools is correct?

Which statement about pools is correct?

• A. Pool members benefit from risk sharing with other pool members.
• B. Pools are expensive for members because they generally purchase reinsurance.
• C. Each pool member will pay higher premiums compared with guaranteed cost insurance.
• D. Public entities cannot be members of pools.

Answer: (A)

Risk sharing is the essence of a pool. Members contribute to a common fund and pay claims from that fund, so losses are spread across many members rather than borne by one entity alone. This sharing reduces the financial impact on any single member and can lead to more predictable, potentially more affordable coverage for groups with similar risk profiles. Public entities can participate in pools, so the idea that they cannot be members isn’t correct. While some pools use reinsurance, that doesn’t automatically make membership expensive—the price depends on the pool’s design and claims experience.

Risk sharing is the essence of a pool. Members contribute to a common fund and pay claims from that fund, so losses are spread across many members rather than borne by one entity alone. This sharing reduces the financial impact on any single member and can lead to more predictable, potentially more affordable coverage for groups with similar risk profiles. Public entities can participate in pools, so the idea that they cannot be members isn’t correct. While some pools use reinsurance, that doesn’t automatically make membership expensive—the price depends on the pool’s design and claims experience.