It's not uncommon for insurance companies to require that you list your mods with them and that the car be roadworthy, it's pretty standard practice.
Even if you're allowed unlimited legal mods, they might affect the amount they need to pay out in the event of a claim (and hence your premium) - yeah yeah, insurance company trying to bleed you for more money and all that... but you'd be pissed if you've poured big $$ into your car and they replace it all with stock parts, assuming they don't void your policy altogether for not disclosing the mods in the first place.
Also, if you have an Agreed Value policy, trying to tell them your R32 is worth $25k (for example) is pretty hard to swallow if they look at the piece of paper and see a rock stock GTSt