Sure, but without insurance, everyone would have to have enough cash available to build a second home in case the first burns down (ie, provision for the worst

Sure, but without insurance, everyone would have to have enough cash available to build a second home in case the first burns down (ie, provision for the worst case loss). With insurance, just need to have extra cash corresponding to the expected loss (ie, worst case loss times probability it happens) plus some cost for administering the insurance. So, effectively [1], with insurance everyone can build a house nearly twice as big as without. That strikes me as productive. [1] if the probability of a fire is sufficiently small