Blockchain technology could certainly be used for several aspects of Insurance. For example it could be linked into reporting Blockchains, that record certain events such as Flight delays for travel Insurance, death certificates for life insurance etc. , however its likely its uses would be limited.
There are Mutual Insurance Companies which operate on a pooling of money basis. Not exactly the same as you describe however the idea is that for some group there is an incentive to share the risks associated with a big financial loss so that no one person loses out big.

I have tried to think of Insurance and how it would work on a Blockchain and I can only see limited use cases.
There is a need for an institution settling the complicated cases, driving sales, structuring products that share risk efficiently.
In Insurance as it currently stands there are layers and layers of risks; the public take out insurance, this is layered into a reinsurance contract, possibly a second layer of reinsurance ... This creates the stability or Insurance for the parties involved.