Question

Discuss the effect and risks of pooling arrangements by answering the following:

How can pooling arrangements increase small-business insurance coverage?

Identify how risks can be reduced in a pooling arrangement.

Do you think there are any regulatory changes needed to make pooling arrangements more effective?

Answer 1

Insurance pooling is a system or practice in which there are many small business enterprises join together to secure the interest rates and coverage plans with the help of thier increased buying capacity. There are many small business enterprises which complaint that there are many insurers as such which provides discounts only to the large clients who have a large or big capacity buying power They allowed various discounts to them. And the cost of discounts that are made or provided to the larger clients are get recovered from the small business enterprises by hiking the prices of thier goods and services provided to them .

The risks can be reduced in a pooling arrangement as many small business enterprises come together and join in a group then now then act as a single larger client and take the goods or services in a bulk and take the benefit as a large client. and get rid from this problem.

The regulatory changes that are needed to make ppolling arrangement more effective are

1. Predefined terms and conditions

2. All business enterprises treated equally

3. Have a predetermined ratio of sharing profits

4. Decisions are taken with the confirmation from all business enterprises