It inflates the value of land that is truly worth little because anything you build there would be destroyed and nobody in their right mind would insure you for any reasonable sum.

Reasonable insurance is expected cost * probability + enough margin for a small profit + cover bad bets.

The gap between a reasonable rate and the rate paid is a gift paid to homeowners with above average wealth and builders with below average sense.

Since builders can earn more building a home that will be flooded out in 7 years with a higher selling price by virtue of beings water front property but only if the government subsidizes insurance they are directly incentivized to do so.