COPE3:
You are ok as far as Insurance is concerned, if you are complying with the DVLA rules. If you were driving against the DVLA rules and your licence was therefore not valid, your Insurance would also not be valid.
What DVLA are saying is that under your foreign licence entitlement you can drive both auto and manuals for 1 year only from the date you came to the UK. But under your British licence you are restricted to auto only. You would need to take a driving test in a manual and upgrade your licence.
Huckster