Consider a situation in which home owners are not able to buy insurance for their home. This would cause the prices of homes to go down because owners now have to spend more to ensure it's safety. Less people will be willing to buy a house and those that do own a home will be subject to the uncertainty that they may loss a considerable amount of their net wealth in a short period of time. One must also consider the cost of managing risk. Derivatives such as options can be very costly and difficult to obtain.
Options arise only when a brave soul writes such a contract.
Those who write options must assume the risk from the security holder for which the option is derived from. Thus, if you sum the two positions together, you are essentially unchanged. Therefore, certain contracts are limited in nature and can be very costly to the extent that they are not worth entering into, even if they will prevent considerable downside risk. Derivatives are much more volatile than normal forms of insurance such as life and home, making derivatives more costly and less of a factor in controlling market risk. Hedging is another method that can be used to control market risk.