The issue is no different to that of a car.
If your mate drives your car legally he must be insured. If he has a vehicle it may have a policy which allows him to drive other vehicles, although increasingly this is not the case.
If your mate flies your aircraft he has to be insured. That means either a named individual (and that usually costs very little - unless said mate has less than 100 hours and no time on type), or he may have third party insurance from his own insurance. But this could stretch your friendship if there is an incident and expensive repairs.
Either way it is the aircraft operators responsibility to ensure the aircraft is insured for the flight. If you have 'any pilot' insurance fine, if it is named pilots he/she needs to be named. If there are other limitations they have to be met.
Of course if you're hiring your aircraft out then presumably you already have 'any pilot' insurance.