[pdonis]

> I think the idea is if you don't like what the insurance company uses as a threat of punishment you can just sign a contract with a different one.

It's more than that. The requirement to have such a contract with an insurance company gives people an incentive to not engage in behaviors that will make it more expensive for them to obtain such a contract, just as the requirement to have auto insurance in order to drive gives people an incentive to not engage in behaviors that will make it more expensive for them to obtain such insurance.