They get the insurance because law states they must, or it was a requirement for the loan. They don't understand anything about the insurance, what it covers, make assumptions about what it does or does not cover and their own costs in the coverage.
For example, an assumption could be made that, like auto insurance, when you use it, the premiums will increase. And if you do use it, you still have a deductible to meet. So if you make a claim that doesn't meet the deductible, you now get dinged for making the report and getting a higher rate the next year.
Is that how it works? I don't know. I fall into that category where I have insurance because it is required as part of the loan and I assume it is for catastrophic events, not for the broken AC unit or water heater.