Why do fundamentalists insist on a literal interpretation of the Bible?

Because Man has taught us not to change the interpretation of The Bible not God:) Another reason might be that like many Christians, fundamentalists would simply be seeking to do whatever God wants them to do. In order to do this they would need to determine what God's clear will is wherever possible. They would believe along with many other Christians that the best way to do this is to read the Bible as it is intended by the various authors to be read. This means poetry is read as poetry, history as history etc. Included in this would be the idea that the Bible is authoritative for Christians insofar as it is relevant to their circumstances. Allegorical and other types of non-literal interpretations tend to impose a meaning on the text which often can be coming from the personal bias, tradition, or doctrinal slant of the interpreter and are in a sense imposed on the text from outside. The exception to this is of course where the text itself is an allegory. Further to this, the Bible itself has a number of principles for its own interpretation.

20Knowing this first, that no prophecy of the scripture is of any private interpretation.21For the prophecy came not in old time by the will of man: but holy men of God spake as they were moved by the Holy Ghost.

Thus, since the Bible is not ultimately man's creation, he has no right to interpret it as he pleases, according to his own private views, but is just there to listen and submit to its teaching. Although this kind of thing is really a 'no-no' in any situation, taking Bible verses out of context is particularly invalid as it usually alters the meaning or the understanding to something which was not intended.