I think you may be right about how it would pan out, but ideally you'd either start with a stipend that covers the base rate for your insurance with any increase in premiums beyond coming out of pocket, or averaging premiums across union members to create a powerful economic incentive to keep members in line. I'm not a fan of the latter, because US cops seem tribalistic, and would likely see an increase in premiums as an us vs them issue rather than an internal issue. Pricing bad individuals out of the profession directly is better.

I do also sometimes think about using other law enforcement agencies that overlap in some (but not all) responsibilities to create some sort of incentive structure where if they catch each other breaking the law, it's much more beneficial to screw each other over than be complicit