I know someone who tried to be a smartarse and run a heavily modded car on a straight policy. They found out via a forum, cancelled his policy and pretty much blacklisted him in the insurance market as a fraudster.
Nobody is legally bound to insure you, I can see blacklisting being more common soon enough.
Whilst i can understand the rationale behind that i would suggest that will only cause more of a problem. There are enough people on the roads already with no insurance or paying for insurance that is void due to undeclared mods. It wouldn't stop them driving
I see the wider implications, but that's not the insurance company's problem, that belongs to the law.
What would be there problem is him wiping out some city banker in his prime with a few kids and the several million pounds they'd have to pay out.. Every insurance company has the right to sue the policy holder for the money they've paid in a 3rd party claim if they deem the terms of the agreement to have been knowlingly broken.
So, insurer pays out £5m. Insurer finds out you'd been telling porkies. Insurer sues customer and wins (there's been several high profile cases recently and a precedent has been set).
= Customer's life ruined. They'll take every penny you have and will ever earn.. all for the sake of £50 to declare X, Y or Z.
Not saying i don't agree with their thinking. But i think it's a joint Law & insurance responsibility. Insurance companies are just in it to make money. I was once driven into by a bus. The terms of my policy at the time said i had to pay the excess and once any claim was settled i would be re-imbursed. So i did this. Despite the fact that i had 19 witnesess (it happened outside a Tesco), The driver admitting liability and the Bus company admitting liability the insurance co. tried to wrangle out of paying me the excess back. It took me 8 months to get my excess back, which at the time was £1000 as i had chosen a higher excess to lower the premium.
If they didnt charge such ridiculous premiums on young drivers / older cars i personally think the problem would be a lot lower. My Sister when she passed her driving test bought herself a 1.2 fiesta for £1200. Her insurance was £1800 just because she was 17.
It should be law that insurance can not be higher than the value of the car. They either insure you for less or they simply say sorry we can't insure you
But black listing people doesn't stop them paying out sh*tloads in claims. They will still have to pay out when someone who is legally insured get hits by the blacklisted driver.
It will be even worse, using your scenario, if said driver is not insured. Who do they claim it back from then?