Two points:
1. So what happens when you insure a loan car when yours is in being serviced? Some main dealers insist you get your own insurance for this, so in that situation you don't have an insurable interest in the vehicle as you don't own it.
2. As long as only one of you claims, there's no fraud. Otherwise you both end up in the slammer.
So could I never insure myself to drive my wife's car? She may well not want the risk of losing any NCB by having me on her policy, for instance, so I'd have to go it alone. I totally understand the principle of insurable interest, but in this case you're insuring yourself against having to pay the owner of the car when you stack it. No difference to single day insurance policies, some of which are designed to allow you to drive a car you specifically don't own so you can test drive before purchase.