Why is it bonkers though? In a complete free market, everybody does whatever they want and as a result you get the best deal on your insurance premium.
Not inherently, when the numbers get big - strange things happen. It's not unreasonable that there would be insurance of insurance - it's also not unreasonable that there would be market traded contracts for the insurance of insurance. Provided that all parties can maintain their obligations under the contract... which may be a dubious/untested claim.
They're a lot cheaper than buying the actual stock, because there's every chance they'll expire worthless- and when you're hedging, you think they will probably expire worthless, too.
A "person" can't sell a naked option, this can only be done by bigger companies with a margin account, and will be margin-called when the price approaches the strike price.
The point is, should call options used for hedging regulated as insurance?
Margin accounts aren't that exclusive. I opened a margin account just because but I've never dipped into it. It's just a tool and if you know how to use it, good for you.
But today we are the point where we’re trading each others insurances betting on whether they will be triggered or not. That is bonkers.