Horrible shots? Or just never had the occasion..
They're 300,000 people on an island in the middle of the Atlantic. They all know eachother and are most likely all related to one another. When something happens, ie a car gets stolen, a house gets broken into, the cops get a call, then say "Yeah, in Hravnsvattnajökull, you say? Must be Egil. We'll go over and talk to him."
Crime is nearly non-existent, because everyone knows every one on a first name basis (they even sort their phone book (just one) by first name first...) and you know if you do anything, you will get caught.
So far they apparently never had to kill anyone. Then again, this guy died in the hospital, so with a bit of luck I guess they could still have had a perfect record.
My guess is the cops probably watched some American TV shows and got a little trigger happy...
Hey, I'm impressed they even had a swat team - or maybe they just improvised one?