Spread of Risk

The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time.

Companies are more likely to insure Perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood.

A form of reinsurance under which premiums are paid during good Years to build up a fund from which losses are recovered in bad Years. This reinsurance has the effect of stabilizing a cedant’s loss ratio over an extended period of time.