Thinking of joining a pool this summer?

The basic philosophy of insurance is the concept of the “shared risk pool.” Here is how it works: Several people or “members” band together to pay a set amount of money into the group’s risk pool on a regular basis (as their premium), and expenses relating to the repair of a member’s home due to accidental and unexpected losses will be paid by the pool. You don’t actually know the members in your “pool” – it’s not the neighborhood country club – it’s all happening behind the scenes and handled by the insurer.

What this means is if the balance in a pool is low because of the losses of its members, the amount of each member’s payments into the pool, their premium, will need to be increased to be sure the funds are available to pay for future losses. An insurer manages these risk pools, so members don’t know what losses the pool has recently incurred.

Therefore, since a member has no idea what sort of losses a shared pool has had to recently cover or who has experienced these losses, an increase in premium may be viewed as arbitrary and unfair, especially if the member has had no losses. The point is, when asking for a quote on a property, you are asking to join one of these risk pools. In the simplest of terms, the quoted premium is in part a reflection of the current value of the pool you are asking to join.