Yes, I agree with that, but that still doesn't explain why it would be a good idea to give some students more time on a test. It explains why students would be incentivized to game the system and get more time. But it doesn't explain why we have this strange system to begin with.
Probably started out as an exception for truly difficult situations but like everything else became routinely exploited once widely known about and eventually became a defacto norm and just part of the protocol.
A lot of things start like this. You need someone with an aggressive backbone to enforce things - which these institutions won't have.