It wouldn't be cost effective for anyone if the town paid for it, because the person who can cause trouble isn't the one footing the bill. That small town absolutely could find someone to underwrite it, it would just be cost prohibitive. If the cops themselves had to pay for it on their own, it would STILL be cost prohibitive (at first), but they wouldn't have a choice.

I've had to get some insurance for pretty non-standard stuff in the past. You can't just sign up online, and need to talk with an actual human and negotiate, but it can be done. And if the market gets big enough, then it would become "standard" insurance over time.