They are insured by a California insurance company. And under US law, even if that insurer declares bankruptcy, any other insurance company in the state of CA is required to make up the loss. So a Xapo bankruptcy wouldn't result in a Mt. Gox disaster.
The insurance company will not be insuring the value of the bitcoins. If you think they will be then I would ask you to get a statement to that effect from their insurance company.
In my opinion the most likely outcome of a bitcoin-holding company going bankrupt in any jurisdiction right now is for the state-appointed administrator and any insurance company to completely ignore bitcoins as a valid asset.
So I don't think a promise of having insurance is worth anything and would agree with those who say this isn't much different to letting a contemporary bitcoin exchange be your bank.