Plain version: an insurer cannot simply accept everyone at one price. If it did, the people most likely to have a loss would be first in line.

Underwriting is the selection and pricing of risks: deciding whether to accept a risk and at what premium. It keeps each applicant in a fair rate class and protects the insurer from adverse selection. Deciding how much to pay after a loss is the claims function, not underwriting, and underwriting can never guarantee that an applicant will not have a claim.

Adverse selection is the tendency of people most likely to have a loss to seek insurance more than others do. Optional flood coverage sold at one flat price will attract mainly homes next to the river. If the pool fills with high-risk buyers, that price will be too low. Do not confuse it with morale hazard, which is carelessness after coverage is bought.

Spread of risk means avoiding a concentration of exposures that one event could damage together, so an insurer does not put too many policies in one canyon that a single wildfire could burn. Risk pooling is the same idea seen from the other side: many insureds share the losses of the few. The Property outline uses the term spread of risk and the Casualty outline uses risk pooling, so know both.