Earlier quoted context omitted.
They wouldn't be falsely flagged. It doesn't detect naked photos, it detects photos matching real confirmed CSAM based on the NCMEC's database.
The article posted, as well as many others we've seen recently, demonstrate that collisions are possible, and most likely inevitable with the number of photos to be scanned for iCloud, and Apple recognizes this themselves. It doesn't necessarily mean that all flagged photos would be of explicit content, but even if it's not, is Apple telling us that we should have no expectation of privacy for any photos uploaded to…
Devolving the job to the phone is a step to making things more private, not less. Apple don’t need to look at the photos on the server (and all cloud companies in the US are required to inspect photos for CSAM) if it can be done on the phone, removing one more roadblock for why end-to-end encryption hasn’t happened yet.