This is a really good question, but the main reason is that how insurance set rates is actually a bit more complex than just looking at what's covered. Primarily is because the insurers price a home based on its overall risk, not just the perils that are covered. Firstly, areas that prone to floods often accompanied by other "underwriting" disaster risks such as storms. Secondly, flood frequency is a signal that the area has more natural disaster risk overall. Thirdly, the physical risks to the home itself increases, even if the flood damage isn't paid out.