Might make it more expensive to hire, favoring insiders who are employed at the expense of outsiders. Also makes it harder to switch jobs if you’re unhappy/deserve better.

I'd wager that insiders are given preferential treatment in most companies anyway.

Some places, yes. But surprisingly many places do a really bad job at encouraging internal recruitment, even when it would often let them identify talent they are unaware of and let them shift people into positions where they might be a better fit or be stay for longer. It's especially bad as it can often help shift more of their external hiring to lower risk entry level hires where a bad hiring choice has a lot less impact.