The very British track of hiding behind what the insurance might do!!
The insurance company make NO differentiation between a CPL and a PPL FI. They have undertaken the same course and passed the same test which is all they are interested in. Feel free to call the insurers (Haywards) as I did to ask the question.
I would also argue that a PPL FI with 500hrs and a CPL FI with 500hrs is any different from a skill standpoint. The CPL flight test is easy and just re proves that you can VFR navigate. The FI test is the real test of skill in this case.
If I was that concerned over the standard of a student that I thought they may crash then I would be sending them off with the CFI to validate my view.
I also know many schools that employ PPL Instructors. They just don't advertise it as they do not differentiate. It's only those who feel threatened that create an issue....