An article in the Economist referred to “the basic logic of the insurance industry—that it is impossible to predict who will be hit by what misfortune when, and that people should therefore pool their...

An article in the Economist referred to “the basic logic of

the insurance industry—that it is impossible to predict

who will be hit by what misfortune when, and that people should therefore pool their risks.” In what sense does

insurance involve pooling risks? How does the problem of

adverse selection affect the ability of insurance to provide

the benefit of pooling risk?

Source: “Risk and Reward,” Economist, May 12, 2015.