+1 on them not being clued up.
my mate crashed his old 206 that was modified, nothing declared, someone came out to check the car and said the only thing that wasnt stadard was a sticker

however, i suspect that when the police told the insurance companies most of there policies will have been canceled...
as for your friend getting told he only had to pay a little extra money, he was lucky, cause not many companies would do that.