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Risk pooling provides customers with cost-effective protection against the financial consequences of various perils, which would otherwise have required them to accumulate large amounts of precautionary resources to self insure. By enabling customers to undertake activities that would be individually too costly or too risky, insurance also augments economic growth and hence future welfare. Moreover, since perfect risk pooling is impossible and insurers, particularly life insurers, therefore hold substantial assets, they play an important role in the efficient allocation of capital in the economy.
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