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).