What is Risk pooling?

The basic mechanism of insurance: many people exposed to a similar risk pay a relatively small premium and form a common fund, from which payments are made to the minority who actually suffer a loss. For each individual it is unknown in advance whether a loss will occur, but in a large group the number of losses becomes fairly stable and predictable (the law of large numbers). That is why the insurer can set the rate using actuarial calculations. The larger the group and the more it consists of risks independent of one another, the more reliable the result; very large risks are spread among several insurers through reinsurance.

Source: Britannica: Insurance policy; Britannica: Risk-sharing