Comment by munificent

But if they don't set a price ceiling, then insurance companies price gouge.

You can't get a mortgage without insurance, so if insurers were allowed to freely control the price, they'd charge an arm and a leg since buyers are forced to buy. If insurance companies are allowed to freely raise their prices, then they would certainly love to do so because any homeowner with a mortgage would be absolutely stuck and have to pay whatever they demand or risk the bank taking their home back.

I think you have an idea that the free market would naturally lead to an efficient insurance price that let's them cover disasters. But markets aren't magic, and insurance markets are anything but efficient. I don't think anyone really knows what the "right" price for homeowner's insurance is in places like Florida and California.