However, with insurance, the merchant always loses 800$ and gets 10,000$ (either from the sale or from the insurance), so, the returns are 3000 + 10000 - 800 = 12200$! The insurance buyer is playing a game of geometric returns while the insurance provider is playing a game of arithmetic returns, so, both can be making money simultaneously. This scheme lowers arithmetic return to 3% but increases geometric returns to 2.1%.