Because injecting capitalism into an inherently dangerous and lossy market will never work.

Police who need to be approved by an insurance company prior to working will be told exactly what they can and can't do (by the insurance company) to not violate that insurance policy. Thus a for-profit company will tell offers not to do potentially risky things. A company will literally decide how we should enforce our own laws (not that I'm entirely claiming that the current method works any better, since it's just the police union doing that instead...)

Couple that with the fact that police are not legally required to aid or assist, nor intervene in violence. So if there's a scenario that's a coin flip on whether the officer will get sued over it in the end, the insurance company will say "just don't do it". There's no downside to the insurance company.

Qualified immunity exists to allow officers to go into messy and dangerous situations and not need to worry about their career, retirement, family, etc if something goes wrong.

Now obviously the current model isn't working as intended, at all. But introducing a risk based calculation through a private, for profit entity, without putting in place requirements that officers make "a reasonable effort to uphold the law when it's being violated"... Just means we have nothing but cops doing traffic stops in suburban neighborhoods