That is only true in a zero sum system. If insurance can get say 3% profit margin but allows for others to take a riskier approach which overall produces 7% mor

That is only true in a zero sum system. If insurance can get say 3% profit margin but allows for others to take a riskier approach which overall produces 7% more profit by allowing slimmer margins both can profit. There are risks to that sort of leverage for both parties, especially in black swan events. It is akin to loans essentially - the one taking them may be giving profits to others but that doesn't mean it isn't cost effective.