<Ol> <Li> Centralized inventory saves safety stock and average inventory in the system . </Li> <Li> When demands from markets are negatively correlated, the higher the coefficient of variation, the greater the benefit obtained from centralized systems; that is, the greater the benefit from risk pooling . </Li> <Li> The benefits from risk pooling depend directly on the relative market behavior . This is explained as follows: If we compare two markets and when demand from both markets are more or less than the average demand, we say that the demands from the market are positively correlated . Thus the benefits derived from risk pooling decreases as the correlation between demands from the two markets becomes more positive . </Li> </Ol> <Li> Centralized inventory saves safety stock and average inventory in the system . </Li> <Li> When demands from markets are negatively correlated, the higher the coefficient of variation, the greater the benefit obtained from centralized systems; that is, the greater the benefit from risk pooling . </Li> <Li> The benefits from risk pooling depend directly on the relative market behavior . This is explained as follows: If we compare two markets and when demand from both markets are more or less than the average demand, we say that the demands from the market are positively correlated . Thus the benefits derived from risk pooling decreases as the correlation between demands from the two markets becomes more positive . </Li>

Why is insurance regarded as a pool of risk