[kevhsu]

If the chance of anyone winning is y and the prize is x, you can pay the insurer (x*y)+z dollars to pay out the x dollars in the event that someone wins. I'm sure z is probably tied to x in some way, but just know that z is the money that turns into the insurer's revenue in the long run.

You're basically paying the expected value(cost?) of the prize, plus a fee to the person who's insuring you. That way a billion dollar contest will not actually cost you a billion dollars, even in the event that someone wins.