Pooling in insurance

Abstract

Risk sharing resulting in pooling of risk is considered. First pooling is discussed from the perspective of life and pension insurance. Second we take the perspective of Pareto optimal risk sharing, originating from a model introduced by Karl Borch in the late 50ties, and discuss when pooling may result, and also what is needed for pooling not to be optimal. Finally we illustrate by some examples, including a limited liability partnership.