maxsteam: You need to reply to all correspondence, keep copies and keep your story accurate and consistent. It's a bit late now but if you noticed some rust on the dint that you are being blamed for, a photo of the damage (perhaps with a camera phone) would greatly help your case.
The history of the people involved can be useful to know. I expect you have a good driving record while the other driver has a record of a number of other disputed claims. You may need legal advice and your local Citizens Advice Bureau might be worth a visit.
Excellent advice from Maxteam here, especially the points raised RE pictures/claims history of the other person (which will be checked). The only thing I would say is to NOT reply to ANY correspondence and forward any such to your insurer immediately. You may write back to the police stating that the matter is with your insurance company and that they should refer to them for further information. You will not be obstructing the police with their investigation as they did not attend the scene and this is an insurance matter, not one for the police. In actual fact, I'm suprised they have actually written to you.