I'm not going to get into the ethical implications, which is not what was asked about. I'll just report that I spent several weeks in Peru--cities, rural roads, dirt, pavimento, north, south, east, west, desert, mountains, etc.--usually riding alone and was not once asked about insurance. Like you, I declined to buy any when I found it was only available for a year at relatively high cost.
I was warned about a specific cop on the coastal road who was harassing travelers on bikes, but I managed to avoid him. On other occasions I was stopped, asked for my papers, and politely told to please ride on when I showed them various expired, canceled and/or ineffective documents (registration, license and North American insurance respectively).
So.....I'd try to think about what it is that you're doing which attracts so much attention. I doubt that it's merely riding alone, although what do I know, really?
Hope that's helpful.
Mark
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