So either everyone is doing it without a permit, or whoever has a permit is not adhering to the overly-restrictive policy.

Tenants should have it regardless so rent should not be affected by them getting their own insurance policy. 

I have rentals that are insured for 100k-160k full replacement policies and pay about $50 bucks a month.

The apartment complex I worked for required all tenants to have a minimum of $100K liability and you'd be surprised at how many times we had to use their policy for some sort of damage to the property (i.e. flooding, fires, etc.).

The sum of these policies is that our tenants tend to stay with us forever.There's also one last major mitigating factor that is perhaps specific to many areas, but very much so to mine.

But ultimately, the title search that matters is the search done by the agent that needs to issue the title policy. 

Tenant can start insurance, move in, and then cancel the policy.

I would not remove it from the lease, only because you are communicating to the applicant that you will change your policies for them and your rules are subject to negotiation. 

They have almost turned it into a business policy and once you get in you cannot get out....

@Tom Rutkowski has gone to great lengths to educate me on whole life, universal, and indexed universal life insurance policies.