> If you have 10,000 customers in Los Angeles, and 5 million elsewhere, you can either isolate the LA customers and charge them the "real" price

That's the only way.

> which will be unviable as a business and probably politically touchy too

Why would it be? If you live in Los Angeles - doesn't mean you don't need insurance (even if it several times the cost of insurance in the safer areas).

> or you can include them in the broad pool

No, you can't. Your competitor who doesn't do this will offer cheaper insurance - because they doesn't distribute high risk of small group to everybody else.

> the people with a full-cinderblock home in a non-flammable state pay $20 more a year so the entire endeavour can work.

Why would they do that? 20 bucks is 20 bucks.

> The concept probably works better if you have some concept of social cohesion to lean on

You mean if you with totalitarian governance deprive people of the ability to choose? Yeah, that could work. I mean, that's how the gulags were justified.