> you wind up with groups too small for insurance to work.
This is quite simply not true, and I can't help but think that this statement comes from a very fractured rule-of-thumb understanding about how insurance works.
Insurance works by charging you around (naively slightly more than, but actually usually slightly less than) your expected cost to the insurance pool. It doesn't matter if different pool members have different costs; as long as you charge them appropriately, insurance continues to work fine. Why do you think that charging different amounts to different customers would require splitting the pool?
This is quite simply not true, and I can't help but think that this statement comes from a very fractured rule-of-thumb understanding about how insurance works.
Insurance works by charging you around (naively slightly more than, but actually usually slightly less than) your expected cost to the insurance pool. It doesn't matter if different pool members have different costs; as long as you charge them appropriately, insurance continues to work fine. Why do you think that charging different amounts to different customers would require splitting the pool?