Insurance in baseball is definitely a thing, but not to where every team is not insuring every contract against long-term injury. Some teams use it a lot, others hardly at all, and it’s not recouping the full value.
Impossible to say of course whether the Brewers have anything on Woodruff. Either way, the Brewers like any other MLB team are worth enough money where taking a hit on a $21M contract, as much as it might suck, isn’t crippling to the franchise.