It's because in island, there is the meaning of isolated.
Etymologyonline, that is a wonderful site usually to learn English etymology,
but here I think they had it wrong
They say that "island" is not related to the Latin "isola" but is from a Germanic root ieg/akwa (water).
I'm sure it's wrong, as the English isle is from the old French isle (Modern French île) meaning island.
And the French, is directly from the Latin Insula.
So I think the English is also indirectly from Latin.
So, there's the idea of being isolated in English and in Latin, in an island.
Same root than isolated, via French isolé.
(There's maybe a relation with the Latin "solus" and the French "seul" in "isolé", but as dictionaries say they ignore the real etymology of insola, we can only find coincidences, or maybe it's not the same root.)
To come back to the "insula" being an island, and an isolated thing.
It seems that those buildings are isolated, they are figuratively insulae.
(Edit: from the Wikipedia page, they say it wasn't separated neighbourhood)
Insula, according to the Gaffiot is an "island" of houses, or an isolated house.
I don't know if you would find the expression "island of houses" meaningful in English, but in French, we say "un îlot de maisons". (a block of houses, but isolated like an island).
Read this interesting article about Insulae as houses:
In Roman architecture, an insula was one of 2 things: either a kind of apartment building, or a city block.
An insula housed most of the urban citizen population of ancient Rome, including ordinary people of lower- or middle-class status (the plebs) and all but the wealthiest from the upper-middle class (the equites). The term was also used to mean a city block.
[The elite] and the very wealthy lived in a domus, a large single-family residence, but the 2 kinds of housing were intermingled in the city and not segregated into separate neighborhoods.
The ground-level floor of the insula was used for tabernae, shops and businesses, with the living space upstairs. Like modern apartment buildings (...) insulae, like domus, had running water and sanitation (stercus!!!)
First thing I thought of. "I live on (not in) an island" should be acceptable as an answer.
The Roman notion of insula for tenement building makes perfect sense, though. We have the same idea in modern supermarkets, where we call the space-maximising, free-standing isolated shelving units "islands" or "gondolas".
"I live in a block of flats" should be acceptable (reported). We don't generally call them "apartment buildings" or "condos" in the UK. An "apartment" is a "flat", and flats come in "blocks" (a single tower, not a "city block"). "There are three blocks of flats in our street" would be a perfectly normal sentence.
in the USA apartment house is appropriate. In a sense you are not isolated and the building is not necessarily considered a villa. In some cities the apartment house/villa/building can be on an island. Or am I just a narrow NYC dweller? The rest of the country may see his in different light. Come to NYC and you may see it differently. Hopefully, with a smile. Grin and bear it. We do!