Given the problems with insurance payouts over police helo crashes (thankfully rare) that were fully certified for police ops and operated iaw the police AOC, I would expect the insurance companies to take a big step backwards for any claim for a case like this.
Whether the pilot was receiving cash or not and even if he is operating within the normal rules of the ANO he is still conducting police work and we all know how the insurance companies will use any excuse to keep our cash !!!!
Finally, the police force concerned in this would, I believe, be operating against Home Office policy, another excuse for the insurance companies to drag their heels !!!!
With regard to Skywatch, I can't see a problem for them if all they do is keep their eyes out whilst airborne and report something back but I think they should check with their insurers if they are going to get airborne specifically to carry out search tasks.
As an aside, do they carry an observer with them ? Its impossible to carry out an effective ground search and a proper lookout if you are flying single pilot.