This response is based on the information provided.  We suggest you discuss with your contracting and finance team, program manager and/or legal department as appropriate.

It is not appropriate to pay profit on profit for work flowing from different parts of the same company.  Specifically, the company is intending to self-insure and the language of FAR 31.205-19 speaks explicitly to cost not price.  That language clearly intends that the insurance is at cost.  Profit would be applied at the final subtotal level.  That the contractor is reluctant to provide specifics of the insurance now becomes a matter of DHS's negotiating skills.  A going in position is zero as the contractor is unwilling to make its case as to what parts should be deemed allowable, i.e. it is the burden of the contractor to clearly identify the legimate cost (that needs to be at or below what the commercial market offers) of self-insurance.