This is the only reasonable solution for them though. If you don't close it like this, you could end up spawning a whole market, and you're no longer selling a product (maybe not the most "optimized" product, but which still satisfies all parties), instead you're competing against this market of your own creation.

Any sensible person would just add a clause to the terms.

This is considerably less consumer hostile response than the realistic 'price-optimisation' alternative of excluding the flights people are most likely to need insurance for from the insurance pool [though it sounds like they've given themselves very broad scope to deny claims]