Which principle allows risk to be spread among a large number of individuals?

The principle that allows risk to be spread among a large number of individuals is risk pooling. This concept is fundamental to insurance. In risk pooling, many individuals pay premiums into a collective fund, which is then used to cover the claims of those who experience a loss. This approach effectively minimizes the financial impact on any single individual by distributing the risk across a larger group.

When numerous policyholders share the financial burden of losses, the overall risk is reduced for each member of the group. This mechanism is essential for the stability and sustainability of insurance, as it ensures that the premiums collected can cover the expected claims plus administrative costs.

The other options represent different concepts within the insurance framework. Insurable interest refers to the requirement that an individual has a financial stake in the insured subject in order for the insurance policy to be valid. Underwriting is the process insurance companies use to assess risks and determine appropriate premium rates based on those risks. Premium calculation involves determining how much each policyholder will need to pay, factoring in various risk attributes, but it doesn’t directly address the spreading of risk among individuals.