ch 7 - pools

[DanielZ]

Hi

In chapter 7, page 11, the notes describe pools:

"The critical difference between insuring with a conventional insurer and insuring with a pool is that the insured's liability to an insurer is limited to the premium charged, whereas the liability to a pool will be related to the insured's share of the total claims and other costs that arise."

Does this imply that members of a pool have potentially unlimited liability? Or is the liability limited to the amount of capital that they have contributed to the pool? I suspect its the latter.

Thanks

Dan

 

[Katherine Young]

You need to read this section quite carefully to understand what it's getting at. It's talking about the obligations of an insured towards the pool, not the obligations of the pool towards the insured.

So, it's not saying that the pool has unlimited liability. It's saying that the "premium" paid by a member of the pool is determined by the overall experience of the pool. In short, it's a more clear cut idea of "sharing risk", all insureds in a pool share the experience of the pool.