One big problem I can see is that insurance only works for the individual disaster.
An accident of some sort, with low probability but high cost. The insurance paid by everyone insured is used to cover single events like an accident and the operating costs of the insurer. That works as long as the the expected accident costs to be covered are lower than the insurance premiums paid.
Now the trouble is that if difficulty rises, it rises for everyone. That's eg similar to a situation where a house insurer has to face claims due to flood affecting all of the houses insured. Now typically this is a catastrophy, and the insurer would not be able to pay - that's why he usually is required to be insured himself (Eg in Europe the "Muenchner Rueckversicherung" insures insurance companies for this class of disaster).
That means for your business idea, that in case of a big difficulty increase you will have to payout to everyone insured, which in turn means you cannot on average payout more than what people have paid you. You can up your payout a little bit if you also allow people to be "insured" against lower difficulty increase than expected - but that only makes your shop a betting outlet, with low payout multipliers. Which is of course a problem because you will find less people to participate in your scheme.
An accident of some sort, with low probability but high cost. The insurance paid by everyone insured is used to cover single events like an accident and the operating costs of the insurer. That works as long as the the expected accident costs to be covered are lower than the insurance premiums paid.
Now the trouble is that if difficulty rises, it rises for everyone. That's eg similar to a situation where a house insurer has to face claims due to flood affecting all of the houses insured. Now typically this is a catastrophy, and the insurer would not be able to pay - that's why he usually is required to be insured himself (Eg in Europe the "Muenchner Rueckversicherung" insures insurance companies for this class of disaster).
That means for your business idea, that in case of a big difficulty increase you will have to payout to everyone insured, which in turn means you cannot on average payout more than what people have paid you. You can up your payout a little bit if you also allow people to be "insured" against lower difficulty increase than expected - but that only makes your shop a betting outlet, with low payout multipliers. Which is of course a problem because you will find less people to participate in your scheme.
There's a flaw on your reasoning, insurances actually have the money for catastrophes, the thing is they have "reserves" depending on different situations,
for starters it would go like this:
Insurance opens:
1-People gets the insurance
2-insurance company invest the money to win at least some interest( in a period of time) on the money that they recollected <- where is this "insurance"company invest the money?
3-Those investments have to be ready to be made liquid in case of an event.
4-Each individual will pay fees monthly and that will assure that you actually cover his lost in the future.
To avoid looses in case that btc price drop, means that the insurance company should reserve the money with a stable currency like US dollar or Europe EURO or British Pounds.
So you advise insurances to gamble with its subscribers money? Because if you don't and they just invest into traditional investment vehicles, they can probably expect 4-8% return on investment per year in dollars without exaggerated risk. But then they are exposed to a rise in price of bitcoin, which probably no one believing in the future of bitcoin is willing to take.
So that leaves investments in bitcoin projects/securities that pay out bitcoin - only those are an order of magnitude riskier, there is usually little recourse if one of them fails to pay out/back and there is almost no bitcoin venture that you can invest in that will guarantee you liquidity of your funds.
That basically means that such an insurance scheme cannot invest the received bitcoins if they are an honest company.
I explained how it works on real life... gambling is another thing but on real life insurance company MUST invest the money so they can pay in the future.
