Why is that unique to insurance? Taking money for a service and then not providing is just normal fraud, it's unclear why you'd need insurance-specific regulations for that beyond ordinary contract law.
Given all these terms and stipulations, it's easy for the insurance company to say the policy doesn't cover the specific event that led to your loss, even if it should. Which is when you have to take them to court. So in the interest of keeping the insurance business an actual legitimate business people trust, you have oversight.
Insurance payouts delayed are insurance payouts denied.
There are Nash equilibria at many different points on the curve, but only a narrow range where the value proposition of insurance is appealing to potential customers. An Insurance Commission's job is to force it into the range where negligence and arson are not paid, but genuine misfortune is paid immediately.
If an insurance company is regularly stiffing people then it won't last long regardless of whether an insurance commission exists or not.
If you lose your family and house in a fire, with marginal savings, then you may not be able to afford a lawyer and your contract is useless in the truest sense of the word. Unlikely situation? Yes, but then, that's exactly what insurance is all about.