Thankfully I think i've now sorted it with the insurance company so all good there.
It's not the fact that they won't entertain a refund - as I said and others have pointed out, it's in their T&Cs so although it's rather low on their part given the circumstances, quite within their rights. It's the fact that they want to charge and EXTRA £10 just to send a letter saying that they have cancelled the flight which I think is just about as low as it gets. Being honest, the insurance would probably cover the £10 as well but it's the principal of the thing.