I would love to see that. Of course, certain legal requirements like ownership of the underlying security would present a bit of a problem in the traditional insurance context. It would be nice to see a town or a state buck the trend and find a way to legitimately make this happen (Texas, are you listening?). Other than on a limited basis, could you imagine the capital reserves that would be required for a wholesale across the board coverage? Even on a traditional reserve basis, the reserves required could exceed $600 trillion. The scale of debt at all levels is staggering, really.
You're right. Even factoring in the presence of a watchdog insurance company keeping reckless politicians in check, the vagaries of economies or unexpected calamities would make insurance too expensive.
But we still end up having to pay that price under the current system, so there must be a way.