Please explain in detail this fundamental principle of insurance: The risk must be spread over a large number of policy holders

Insurance does not eliminate risk, rather, the risk is spread over a large number of policy holders. The interests of all policy holders are protected by insuring their risk. The insurance company pools the funds collected from policyholders by the way of premium and uses those funds in case of contingency for any particular policyholder. The company covers large geographical boundaries so that it does not have to bear any losses if a natural calamity occurs in any particular geographical area.In this way, insurance becomes a profitable venture for both the insurance company as well as the policyholders.