Under the concept of 'pooling of risks', the premium charged by an insurer should:

The concept of 'pooling of risks' in insurance is fundamental to how insurers manage uncertainty and spread financial risk among policyholders. When multiple individuals or entities with similar risks come together in a pool, the insurer calculates the premium based on the collective risk.

The correct response emphasizes that the premium charged should reflect the risk being presented. This means that when assessing an individual’s application for insurance, the insurer considers various factors that contribute to the specific risk level associated with that individual. By evaluating these risk factors, the insurer can determine a premium that accurately reflects the likelihood of that individual making a claim. This individual assessment ensures that the pooling of risks remains balanced and that those who pose higher risks pay premiums that correspond to their greater likelihood of causing losses.

In contrast, while the average claims cost of all risks insured is an important consideration in the overall pricing of insurance products, it does not account for the nuances of individual risk assessment. Similarly, while ensuring profitability is certainly a goal for insurers, it is not directly tied to the concept of pooling risks, which relies more heavily on the collective risk dynamics rather than solely on profit objectives. Individual underwriting decisions, as mentioned in the first choice, may factor into the premium calculation, but the essence of 'pool