Insurance validity requires the flight to be "legal".
I agree the flight would be legal as per ICAO (State of Registry) requirements.
But if e.g. you fly your plane via an airspace which requires the carriage of an ADF (or a pair of pink underpants) but you haven't got an ADF (or pink underpants) then you are not legal in that airspace.
I am not saying that I have bought into this "N-reg threat" but this is how it could work. Each ICAO member has sovereignity within its airspace, which is how e.g. the UK CAA can require the carriage of an ADF for all IFR in CAS, and this is applicable even to an N-reg Cirrus
