I am curious to know why flying over water (day or night) is considered so dangerous
It's persons willingness to accept the risk entailed I guess. Richard Collins, aviation author, happily flew his 210 day or night IMC, but had his personal limits, such as cloud base high enough for him to set up for a landing into whatever was below in the event of an engine out.
Where is CASA on this matter? Surely there are safety issues here
Stickshift has given you the answer
Sunny.
Life choices are all about risk appetite and risk management
There was a time when CASA, or whatever its name was at the time, approved commercial single engine pax operations over water far from land, simply because the world didn't have equipment to do otherwise. Only requirement was no more than 50 miles between available landing spots. Single engine sightseeing commercial ops are still carried out on the barrier reef of course.