As you said though the bank wont allow the borrower to drop the PMI until they feel like there is enough equity there to pay off what the borrower owes easily.
The loan will include the total value of the property (land + improvements) So yes, the bank might allow for the borrower to drop their PMI after they get to 20% equity, but much of that equity is in the land which will always retain its value regardless of what happens to the home.
If you have a $500,000 home sitting on a million dollar lot, and the home burns and you didn’t have PMI and instead had some regular insurance, whatever insurance you had will go to the true home owner, the bank first.
That is why the old adage of "neither a borrower nor a lender be" comes back to haunt many. Being out of debt is a better stance, when calamity of this sort strikes, than being "second" when a lender comes first.