Operate like they did before they had access to surveillance technology that would have made Gestapo and Stasi blush

This. If you're nearly "perfectly" pricing risk on an individual level then you defeat the point of insurance which is to pool risk.

If my hypothetical cost over an N decade period is within a fraction of a percent of payouts in that time what do I gain by paying for insurance other than creating a principal-agent problem?

You’re mad the insurance companies are charging you what you owe? You do have the option to self-insure.