Flight only....no they can't insist.
On a package then its different. The book conditions are pretty standard for the main guys. Operators were prevented from insisting on you having their uinsurance for competition reasons. Thay are allowed to isnsist that you have insurance cover that is of the same standard as thiers. So you can't say well I've bought a £5 policy and that will be fine.
The reason for this is that operators can have a liability if things go wrong. In the first instance they have to provide up to £5000 to help you but thi is often done knowing their will be a policy in place to pay up at the end of the day. If you don't have that then why should they take the risk.
All in the small print i'm afraid.