What is an insurance group?
An insurance pool is a collective pool of assets from several insurance companies. Packaging is used as a way of providing high risk insurance. Companies alone could not bear the risk of taking on high-risk accounts, but by pooling their assets with other companies, they can extend that coverage and offer a higher level of coverage. Bundling is a commonly used tactic to manage high risk insurance.
With an insurance group, when someone makes a claim to their insurer, payment comes from the collective assets held in the group, not from the company's own coffers. The pooling process spreads coverage risks, and most pools are designed to grow over time as the client list grows and companies contribute additional funds so they can support even the largest number of claims. In recognition of the services they provide, the government sometimes offers special incentives to insurance groups that make it advantageous to pool assets.
In some cases, a government-determined insurance pool is established to create a resource for high-risk applicants to obtain insurance. In other cases, insurers voluntarily pool their funds. For example, nuclear insurance is provided through insurance pooling, as no insurer is willing to assume the risk of insuring a nuclear facility. Likewise, many states have health insurance groups designed to ensure that people who are not eligible for individual coverage can access health insurance through the insurance group.
The insurance package is often used as a method of providing insurance to people who would not otherwise be able to afford it. For example, people in California often purchase earthquake insurance through an insurance group because California home insurance may specifically exclude earthquakes from the hazards listed on the policy. Residents of the hurricane-prone Southern United States can also take advantage of the insurance pool to access hurricane and flood insurance because their homeowners' policies do not cover these hazards.
Another example of a subprime insurance group is a group created to extend environmental liability coverage to industrial manufacturers and producers. Such insurance is required by law in many regions of the world, so if a company causes environmental pollution, it will be paid. However, this insurance is highly risky for an insurance company as environmental contamination can be extremely expensive to clean up. For this reason, many companies choose to create an insurance group to provide such coverage.