Please thoroughly check the insurance policy and see whether any such pre-condition of transfer of ownership of vehicle has been mentioned in the policy before they compensate you for your loss.
If there is, you might want to challenge the validity of that condition since, in view of the law as indicated by the Registration Authority, the vehicle cannot be transferred without physical inspection. Therefore, insurance company cannot insist on this condition.
It is well settled that law cannot compel a person to do the impossible.
You can issue a legal notice to the Insurance Company calling upon them to comply with the requirement that they have agreed upon and if they do not comply within the period specified, then you can file a complaint before the consumer forum as well as seek damages.
The very demand of Insurance company to ask you to have a stolen vehicle transfered in its name is absurd. Even in other case like total loss due to accident etc., if Insurance company so desire, it can have such vehicle transferred in its own name at its costs, expenses and charges and need not ask the insured to do the same. Only thing which an Insurance company can ask the registered owner, is to sign necessary forms and other documents for the purpose. You can approach appropriate forums like Consumer Forum or Civil Court and can also claim substantial damages for the harassment meted out to you by the Insurance company in the entire process.