Spread of Risk

Spread of risk is a term used to describe how insurance companies minimize their risks by writing policies for many different policyholders. Spreading risk generally means offering insurance in multiple geographic locations or having many different types of insurance available. This helps to protect the insurance company from significant losses due to a large number of claims. The risk is spread throughout the policyholders–the likelihood of a large number of policyholders experiencing losses simultaneously is low. By spreading the risk, the insurance company can provide coverage to a larger number of individuals or businesses.