Ah, now if cargo insurance worked in cases of piracy, then that is insta-exploit if the insurance payout is decent. Team up with a friend and get "pirated" is a win-win then.
Its also a bit tricky if it was paid out on destruction, because then traders would have even less reason to hand over cargo to a pirate. Too few players are willing to play along with pirates as it is. Imagine what would happen if the trader could just laugh at the pirate and say "Ok, blow me up, i'm insured for loss, you get nothing. . na na na".
Still, it must be there on the display for a reason

And nobody expects a 100% insurance coverage, the display itself is in percentage. Fact is, it is there above ship insurance, it's not in the game, and in my opinion it is something that is needed, because as explained in two threadnaughts by now, the pew-pewer doesn't risk anything, the trader risks a lot more then the ship if the cargo hold is full.
Also a long-long time ago I argued that destroying a ship that carries say.. imperial slaves, should incure not jut a murder for the pilot, but also for the 200 tons (brrrr) of people. If we go strictly by math that's around 14.2 people per ton, so for 200 tons of slaves, you'd incure the penalty for killing 200 x 14 = 2800 people

There you go, nice bounty right there.
And yes, it sounds silly, but then again the attacker just did the equivalent of sinking the Titanic with everyone on board.