Going with the out of insurance method,both parties need to be good people and amicable. The other party sounds a bit of a trouble maker. I would tell him you have told your insurance and are letting them deal with it, you will need to inform your insurance company too.
Either, he will take the £200 (if he is resonable) or go via insurance (in which case you have probably saved yourself some hassle)
Idea of free money does werid things to some people.