When someone purchases Auctiva shipping insurance, lets say the $1.30 for example, you receive the full amount in the buyer's total. $1.05 is owed to Auctiva, the other .25 is additional profit where as with USPS, you pay USPS the full 1.30.
You owe Auctiva that amount because, like I mentioned, you receive the full amount of the insurance when a Buyer chooses it, and basically you owe Auctiva a portion of that for insuring your product.
It's actually a really good system...makes us some extra change, and keeps this site FREE.