FWIW you can play the entire game with very low character skills. So if you die a lot like me it's not the end of the world, although it does mean the relative difficulty tends to be a bit higher since you will be doing less damage, etc. I don't like that particular mechanic either but it really doesn't matter that much. And the hidden benefit is of course that it helps with discouraging careless dying, not as a purpose in itself, but as means of combating the "it doesn't matter"-feeling that accompanies penalty free deaths in games. So if they removed it they would have to address that problem in a different way.

The leveling that matters is what gear and other inventory you have such as food. Losing all items on death (if not permanently) is way more grim of a mechanic.