Updating through Kies couldn't possibly invalidate your insurance as that is the approved Samsung method.
I also think it is highly unlikely that O2 could invalidate a claim for rooting the phone unless that was the cause of the problem. I don't know what the O2 policy says but the law on insurance does not permit an underwriter to void a claim by relying on a term in the contract that was not material to the cause of the claim (I used to work at Lloyd's of London so I know a fair bit about insurance law).
There is also the point that they would almost certainly not check and if they did, they probably wouldn't be able to tell.
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