This thread is impressive for the number of irrelevant answers, even by PPrune standards.
Not sure whose jurisdiction this is under, but if it's FAA the question of PIC isn't really important until there's an accident, as long as there is SOMEBODY up front who is legal to be PIC. If there is only one, of course they are it. If more than one, after an accident it will invariably be the most senior/qualified who is judged PIC - this was discussed on another thread recently. So if one is a CFI and the other isn't, the CFI is de facto PIC, if and when it matters. Assuming of course they are qualified - you can imagine a situation, say a CFI who does not have a high-altitude endorsement with a PPL who does, flying a jet up in the FLs.
Insurance under FAA rules is totally irrelevant. You bend the plane and kill 10 people on the ground and you're not insured - you have a big problem, but not with the FAA.
Also, under FAA rules, you can log PIC time even if you're not qualified to be PIC - as long as there is someone else who IS qualified, and you are "sole manipulator" of the controls. That clearly creates some grey areas - if I let my instructor demonstrate something, what does that do for my "sole manipulator" status? But I don't think that's relevant here.
Bottom line is I don't really understand why it's important. Your friend can log PIC time, as long as he is the one flying the aircraft.