You are assuming that everyone finances their car. While a lot of people do make payments on their car, many people own their vehicles and have equity. They would also be interested in insurance. Not to mention, you are only referring to one type of coverage–collision– that protects your own vehicle if you are at fault.
The state only requires that you carry 10k medical for yourself (called personal injury protection), and 10k property damage liability. The later would pay for the other party’s vehicle if you were at fault, which is the responsible thing to do seeing that most people don’t have that much money to pay out if they screw up.

Insurance does not protect you, the driver, it protects the money owed on the vehicle.

In other words, it protects the bank that loaned the money on your vehicle. If you can’t pay off, insurance pays the bank the value of the car.

You are paying someone else to take the risk that you won’t get in an accident.

And the state forces you to minimize the bank’s risk by making you buy insurance.

In short, they passed a law to legalize a form of graft. We were just told it’s called “no-fault insurance.”