The Secret To Profit Certainty Every Business Owner Must Know

Learn the risk management secret that keeps insurers profitable in any market—and how you can use it to build a resilient, profit-driven business.

Ever wondered how some companies manage to stay profitable no matter what’s going on in the world, while others just fold? They have an almost foolproof business model, and understanding it is the secret to running a resilient, profitable business—even in the toughest times. Here’s what I mean.

A Painful Lesson and a Powerful Insight

A little over a month ago, I injured my knee and, after nearly three decades of paying accident insurance premiums, finally had to make a claim.

Given my long-standing ‘loyalty’, I expected the process to be smooth. But weeks later, I was still waiting for my payout, and the whole experience left me reflecting on how insurers operate.

Despite the frustration, I realized there was a powerful lesson here for business owners and investors: insurance companies excel at managing risk, and it’s precisely this skill that keeps them profitable.

Insurance companies have a unique setup that lets them generate consistent profits, often with a high level of certainty.

In fact, they’re so good at it that Warren Buffett—a major advocate of the insurance model—built part of his empire on it. So, what can we learn from insurers, and how can we apply their strategies to our own businesses or investments?

Let’s break down three core principles that make the insurance model so powerful and see how you can use them to make your business or investment strategy just as resilient.

Lesson 1: Locked-In Premiums & Consistent Revenue Streams

One of the core advantages of the insurance business model is its revenue structure.

Insurance companies hook customers with low premiums early on, building a loyal base that keeps paying year after year.

Most people don’t give these regular payments a second thought because the coverage provides a sense of security – and even fear that the premiums paid previously would go to waste if they are late with their premiums and their policy lapses.

The fact is, people rarely switch insurers once they’re locked in, especially after paying for years without issues.

So, how does this apply to your business?

Consider building a recurring revenue stream in your business. This could take the form of a subscription model, where customers pay for access to your service on a monthly or yearly basis.

Just like premiums in insurance, subscription revenue can provide a predictable income stream that helps stabilize your cash flow and allows you to plan for growth.

For instance, if you’re running an online coaching business, offering a monthly membership or access to exclusive content can create a steady income.

Not only does it help you forecast revenue, but it also gives you the flexibility to reinvest in growth, just as insurers reinvest premium funds.

The goal is to secure revenue upfront while providing long-term value that keeps customers loyal.

Lesson 2: Strategic Risk Management: The Edge of Probability and Impact

Insurance companies thrive on a sophisticated risk management strategy that splits risks into two key components: Probability and Impact.

They carefully assess the odds of certain events (probability) and estimate the financial cost if they do occur (impact). By calculating these factors, insurers can structure their policies to minimize the likelihood of large payouts.

For example, they know that younger, healthier customers are less likely to file claims, so they offer low premiums to attract them.

As customers age and the likelihood of claims increases, insurers have already collected years of payments. If a claim is eventually filed, it’s covered by the accumulated premiums, creating a win-win for the insurer.

This makes it nearly impossible for insurance companies to lose money.

In fact, even after a major catastrophe like 9/11 in 2001, most affected insurance companies returned to profitability by 2003.

How can you use this approach?

Start by identifying the major risks in your business. For each risk, ask yourself two questions: “How likely is this to happen?” (Probability) and “What’s the impact if it does?” (Impact).

Then, flip that around and work out your reward.

You can then use this to figure out what your Edge is. In the case of Insurers and Casinos, this Edge is hidden in the Probability and Impact. They structure the casino games and and insurance policies in a way that they cannot lose.

That’s one of the reasons why Warren Buffett is such a fan of the insurance business, calling it the most important component of his famed Berkshire Hathaway.

This approach can be applied far beyond just the insurance, and gaming industries – and is the exact approach we teach in our programs. I used this to determine that I could leave my 20 year corporate law career, to start a business, and replace my income within months. And this same approach helps me in day to day activities as well, from deciding whether to change lanes when driving, to whether to sleep in on a Saturday morning – case studies we go deep into in our programs.

This is the key to having consistent profits, and is used by not only Insurers and Casinos, but by Private Equity, Traders, and even retailers for pricing goods.

And it doesn’t need to be complicated, an Edge could also involve putting safeguards in place, just as insurance companies have underwriting requirements. If you run an e-commerce business, for example, a Probability Edge might involve limiting stock of certain products to avoid excess inventory if demand changes.

Additionally, if you’re in a consulting or service-based business, consider using contracts to limit your liability and manage client expectations, much like insurers manage policy conditions.

This reduces the impact if something goes wrong.

By taking a strategic approach to risk, you’re not leaving things to chance—you’re actively stacking the odds in your favor, just as insurers do.

Lesson 3: The Power of Investing the Float: Buffett’s Winning Strategy

Warren Buffett is a big fan of the insurance model because of another major advantage: the “float.”

This is the pool of premium payments insurers collect from policyholders, which can be invested before it’s needed for claims. Think of it as access to “free capital” that can be used to generate additional returns.

When claims come due, the insurer has ideally made enough on its investments to cover them—and often, much more.

Buffett’s company, Berkshire Hathaway, owns several major insurance firms, including GEICO.

For Buffett, this strategy is brilliant: he takes in billions from insurance premiums and uses that money to buy stocks, bonds, and entire companies. The returns from these investments have made Berkshire one of the most successful companies in the world.

Applying this principle to your business:

You often hear gurus talk about reinvesting everything into your business because that’s what you have control of, you accelerate your growth, build your brand etc.

But a wise business owner knows that you should never put all your eggs in one basket, this is particularly true if, like me, you’re starting a business, not for the sake of your business, but your own personal freedom.

Always build your own “float” by paying yourself a certain amount of your profits, and invest that in other safe and growing businesses, or even Index Funds.

We always tell our students never to treat those as punts but as other businesses that you own – that way, you take an active approach to your investments.

Start a Resilient Business Using These Principles

The best part is, once you understand these principles, you can use them to start a risk-managed business that’s both profitable and resilient – even if you are brand new to business.

For instance, you might consider:

1. Affiliate Marketing – Promoting other people’s products can reduce your upfront costs and minimize risk since you don’t need to handle inventory or customer service.
2. Dropshipping – Sell products without having to stock inventory. When a customer places an order, the product is shipped directly from the supplier to the customer. This reduces overhead costs and minimizes financial risk, making it a popular choice for new entrepreneurs.
3. Franchises – Franchising can provide a tried-and-true business model that comes with brand recognition and a proven support system, reducing the risks associated with starting from scratch, although good franchises can be expensive.
4. Subscription-Based Services – If you’re a coach or consultant, consider offering a membership – a recurring subscription model creates a predictable income stream, much like premium payments. This steady cash flow can give you the financial stability to weather unexpected events.
5. Calculated Pricing Strategies – In any business where you have to price products (essentially any business), you can use a structured approach when setting prices to ensure profitability while remaining competitive. This will help avoid losses due to underpricing or inventory overstocking.

Creating a Risk-Managed Investment Strategy

If building a business isn’t your path, a risk-managed investment strategy can still provide a way to apply these principles.

Look for companies with strong risk management practices, such as high brand loyalty, pricing power, and a proven track record. Companies that follow these principles tend to generate steady returns, even in uncertain markets. Sectors like insurance, healthcare, and utilities often have more resilient business models.

In our Purpostry program, we teach these principles in depth, emphasizing how to build both “Probability” and “Impact” Edges into an investment portfolio. By following this approach, you’re not just investing in companies—you’re investing in concepts and models that are proven to weather uncertainty and deliver steady gains.

Conclusion: Building Wealth Through Risk Management

While my recent experience with my insurance claim was frustrating, it highlighted an important lesson.

Insurance companies, though sometimes slow in payouts, operate on a deeply effective model. They prioritize risk management to ensure they almost always come out ahead, creating a business model that thrives in both good and bad times.

Whether you’re starting a business or building an investment portfolio, adopting a risk-managed approach can give you that same reliability. This isn’t about playing it safe—it’s about playing it smart.

By structuring your revenue, managing risk proactively, and thinking long-term, you’re building wealth and stability in ways that only seem “boring” until you see the results.

Next week, we’ll dive deeper into taking a risk-managed investment approach, exploring ways to apply these principles so that risk works for you, not against you. Stay tuned!