FTX is an example of how mishandling customer funds can cause the platform to grow quickly and in a short period of time. As long as users can withdraw easily, no user will have to ask if their funds are insured.
In the past, Binance was hacked and Binance used its budget to compensate users, which is also good but not guaranteed on any basis. An insurance contract will help users trust and use CEXs more regularly, CEXs will have more users and revenue from transaction fees.
With this insurance contract, CEXs may not need to maintain their own funds like SAFU, they can use this money more effectively to generate more profits for CEXs and provide more value to users.
From the arguement of @hugeblack and including what I perceive personally I think that the idea is defeated already because the crypto insurance company mentioned above can not be able to handle a complete exchange assets because the capacity is limited to handle.
Infact generally if this insurance companies as proposed are going to be creating a cold storage wallet for storing this assets then what difference does it make from one creating his own cold storage wallet, the only special feature here is the fact that compensation is available for ones assets if eventually anything happens but that doesn't really matter for me because it will surely obstruct ones free will on how and when to take ones assets.
I am also very curious about the application of insurance for crypto, I want to understand more clearly to be more confident when using and storing a part of my assets on CEXs.