There's a deeper problem. Bitcoin is very deflationary and strictly limited in supply. What happens if Coinbase cannot obtain replacement bitcoins at a price near what the insurance pays out?

They can refund in fiat of course, but that's the point. If fiat didn't exist then this would be a potentially insurmountable problem if the theft were large enough.

Now what happens if the thief panics or screws up and deletes their keys. Those Bitcoins are now lost forever. The money supply just went down permanently.

... or ... a really smart thief with enough money behind them might not even need to steal any Bitcoins. They could just destroy cold wallet keys in a very stealthy way and profit from the appreciation of coins they hold elsewhere.

This whole system is just not ready for prime time.