Comment by landl0rd

Because tail-risk events are very unlikely, and the average person does not have enough money to diversify widely enough to smooth out their effects. Big entities can launder high variance into low, and they can afford to do this by taking many more positions than an individual. Second, insurance companies directly cannot hold as much risk as they once did. Just like banks don't hold loan books like they once did, insurance tends to reinsure heavily and much of the risk now bottoms out with cat bonds. Third, this is the entire reason we created insurance. It's like asking "why does blue look blue", or when people ask "why does poop happen to smell bad to us". It's tautological.

If what you're upset about is claim denials those are occasionally illegitimate because insurance, like literally everything else, has the occasional bad actor. There's also a massive industry of attorneys who will work on contingency and provide legal representation to resolve that. Much more commonly, it's someone who didn't read his policy, or did but decided post-hoc what it "should" cover. He "shouldn't" have to bear the cost despite not taking out a more comprehensive policy beforehand. This isn't a "capitalism" problem; single-payer systems, generally agreed to be socialistic in nature, still don't cover some things and generally require coverage specifically to avoid people deciding they "deserve" coverage after they get sick. The other major category is things like business insurance in 2020; most policies wrote out plague after the SARS outbreak in the aughts. This isn't "insurers are evil" so much as bio risk is massively correlated which breaks a lot of things about underwriting.

Lots of "acts of god" are, in fact, covered and pay out all the time. Hail and wind and such. Things like flood aren't, because a relatively small number of people live in floodplains and they tend to not want to bear the entire risk. People who live outside of floodplains, on the other hand, don't buy flood insurance, because they don't need it. So you have a lot of adverse selection that makes it hard to insure.