P83.81 is correct for 'umbilical granuloma', but that code section applies to newborns (less than 29 days old) or for conditions that originated during the perinatal period only, per the Chapter 16 notes: "Codes from this chapter are for use on newborn records only, never on maternal records". If the patient is not a newborn, or this isn't a perinatal condition, then you'd need to assign the less specific code L92.9 per ICD-10, or query the provider for additional information, if necessary for a more specific diagnosis.
I'm not sure how the insurance would know if your diagnosis is wrong or not unless they've reviewed the medical record. If the condition is in fact related to the perinatal period, then the insurance company is giving you incorrect information and probably is just applying the coding guidelines incorrectly in their system. If that's the case, you may need to appeal with notes and perhaps a copy of the guidelines explaining their error to them. You can only assign the code that your documentation supports.