Example: John owns 1 BTC and an equal amount (in value) of Umbrella-BTC. Bob owns 1 BTC. Both are held on Exchange XYZ. Exchange XYZ fails and declares bankruptcy protection. John opens up a claim to the CDIC and gets his Umbrella-BTC returned to him. John is still out 1 BTC, but not completely wiped out by the exchange collapse. On the other hand, Bob has lost all his money and has no where to turn for help. He posts a sympathy thread on reddit hoping for donations :-(
You forget Jack. Jack hold 2 BTC. He keep 1 BTC on Exchange XYZ. Unlike John he never heard about Umbrella-BTC. So he keep another 1 BTC in his own wallet (outside the Exchange XYZ). The Exchange close. Jack lost exactly 1 BTC. He is mad but at least he now he still hold 1 BTC. Meanwhile, John is worried. John is not sure if his claim for the lost Umbrella-BTC will be accepted. Also he has no idea of it's value. He wonder if he lost more than 1 BTC.