Well yes, a stupid person indeed and FWIW i do agree, BUT if the house is mortgage free then buildings insurance is a matter of choice. I have no idea where insurance fits in with a 'proper' landlord.
Could be that the insurance company (if involved) are asking only for a quote (with no intention of using the cleaning company) or indeed as you say it could be that they are willing to cash-settle to save money. Having said that though, were i the landlord, i'd sooner use my insurers own contractor to avoid the hassle. But again, its choice i suppose.