Probably not just the degree of risk, but the "lumpy" nature of potential claims. Most travel insurance incidents are relatively regular and affect a relatively small number of people for each one (a plane load or two being about the maximum). The regularity means that the cost of claims can be factored into the cashflow, and likely covered. Things that come much less regularly but are catastrophic are much more problematic.
General insurers deal with this by using reinsurance - they will take the first $x million exposure pre event, and pay reinsurers to cover the rest. Whilst a bushfire or earthquake here might be infrequent and expensive, there are fires, earthquakes, floods, tsunamis around the world on a somewhat regular basis, so reinsurers can handle it.
On a more practical note, unless actually stranded mid-trip, using a credit card to purchase tickets offers some coverage. At least you can get your money back for the ticket. Doesn't help for lost accommodation, purchasing a more expensive replacement or other inconvenience, but at least it is something.
Those policies that do cover insolvency of providers seem to place a cap on the liability - which is a lot less than the potential medical expenses on a single claim basis, but obviously adds up. They also contain conditions that you need to pursue other avenues to receive refunds etc. - so they will be pushing lots of people down the credit card charge back route as well.
