How'd you ensure the key/password is really lost?
Wouldn't be the first time "reputation" isn't a very valid argument when it comes to big amounts of money.

And where should the funds come from, other than the sum of minor fees paid? It'd only take one "whale" losing his key/pw and the insurance pool would be basically stripped naked...

There's a Bitcoin-startup that is trying something similar, though. Might be worth watching and how they plan to deal with such issues.

https://bitcoinmagazine.com/articles/teambrella-wants-to-revolutionize-insurance-coverage-with-peer-to-peer-bitcoin-payments-1459521851

Thanks for the post and the work put in so far!