IMO, it isn't the music which is insular, but the musicians. There is too much of a proprietary attitude towards much of the music that is referred to as "folk music" nowadays among musicians, collectors, and scholars. Also, those who perform/collect/study/write about the music, are often not members of the ethnic communities from which the music has come. There is a definite disconnect in that regard, that has made a lot of what we now refer to as folk music into museum music, enjoyed by an elite few with no connection to the community.

OTOH, a lot of the music that is distinguished as traditional music, does still enjoy a lot of support from the ethnic communities from which the music comes, as a form of "our music" rather than "folk music".

Over the years, I have come to define the term "folk music" as a British antiquarian term that is only meaningful in the sense you seem to be using it Jerry, in an Anglocentric context. Folk music in North America in the past two hundred years, even when it is derived from the music traditions of the islands of Britain and Ireland, has come to mean something quite different than what it has meant in the past two hundred years in the Anglo areas of Britain. Much of the Celtic communities in Britain and Ireland, unless they are scholarly types, don't refer to their people's music as folk music. They refer to it as traditional music, or as their people's music.

I see the music in much the same way as PiedPiper. I think the term "folk music" is part of the problem. The other part of the problem is that in England, the whole "folk music" thing in the last hundred years, was often revivalist/museum/collectors music, rather than an indigenous musical art form of a specific community of people. That disconnect has resulted in the steady decline of the folk club/folk festival (in the "purist" scholarly sense of a folk festival) scene that was a revival phenomenon.