I think the main point is about risk distribution. In a normal insurance contract the main risk of an uncertain event (the damage) is assumed by the insurer, wh

I think the main point is about risk distribution. In a normal insurance contract the main risk of an uncertain event (the damage) is assumed by the insurer, while the policy holder's risk is tied to losing the paid premium. When such a contract is made in advance knowledge of likely occurrence of the event, the risk is fully shifted over to the insurer. Thus in absence of shared risk this subverts the contract into an unequivalent monetary transaction, which reasonably amounts to fraud. Similarly, if there's an advanced knowledge from the insurer on almost certain unlikelyhood of the event, then it's defrauding the policy holder of their premium. So the insurers must pay off time to time to maintain the perceived fairness of contracts. Meanwhile doing their best to balance their share of the risk... and most importantly price in the 'administrative overhead'.