I worked in an area that required an insp before power was restored. Their main items were GEC and a main breaker. They also would red flag any issues they could see with the service it's self and wiring inside the panel.
They would give the owner a red tag and require an licensed electrician make any correction with a permit. Than reinspect and release.
There goal was to have the service and panel in a safe condition. Prior to restoring the service.
Basically, no more 60 amp service to a residence, 100 amp minium per city requirements, no split bus used as service equipment and the meter equipment per power company requirements and an proper GEC and bonding.
Then the same for commerical.
There was time we simply unhooked all branch wireing. Installed a GFCI receptacle made sure service was good grounded/ bonded per code and a release would take place.
Than a separate permit could be pulled for any related work from there. This way we had power to structure to resolve any more issues.
I see no issue with them doing that as long as there fair across the board and have written rules so all knew what needed to be done.
We found insurance company's were stricter than code enforcement panel types. At the time if the FPE had a main. They had no issue with it. If not we sub feed it and treat it as a sub panel and make all necessary changes. Which most of the time it require four wire to range dryer etc. Which we pulled from new panel any way.