[ben509]

Adverse selection inflates premiums, simply because people who need insurance are the ones who buy it.

The point of insurance is to transfer* risk to the insurer. The insurer does that by identifying a group that is homogenous enough that their premiums are just slightly over the payouts.

So an insurer can improve competitiveness by selling multiple products that cover different risk groups. I imagine that for Stripe, the risk variance falls in a fairy narrow band: bounded at the low end by not being worth insuring, and bounded at the high end by merchants losing their account.

* As opposed to say retaining risk, e.g. you don't buy collision on a beater.