You are right that you can get away with it in NZ.

For total loss then bankruptcy might save you money (assuming you have no other assets or kiwisaver; since you still owe the debt).

But part of the contract with the bank is allowing the bank and insurance company to verify/update.

If you cancel your insurance, the insurance company is incentivised to tell the bank since you will probably sign up for insurance again when told to by the bank. I don't believe the banks or insurance have push updates. I would guess banks batch check if insurance is still live annually?

I live in Christchurch and I believe insurance is valuable risk management - plenty of people gambled and lost with Earthquakes. That said: I own an as-is house because I bought a 3 bedroom on 800m2 for $190000 (cheap because you can't get a mortgage for it because it is uninsurable due to subsidence - I only paid land price).

Banks in Australia were the same, but some are now starting to demand proof of insurance yearly to counter that loophole.

You can do that in the US too. As well the banks won't like it, so what they'll do is protect their assets with force-placed insurance that you pay a hefty premium for.

A quick google suggests a similar situation in that there's no legal mandate but most lenders in NZ require insurance.