There is normally no need for putting insulation on the exhaust cross pipe and on the coolant pipe unless something is amiss here. It appears as if you have headers? Compare to my shot of the stock pipes on my 99 and your shot. I tried to get the same angle. I assume this car was purchased from someone else who did this? If so, there may be an exhaust leak under that insulation and this was a quick fix instead of the proper fix like new clamps? The other thing I notice on your car is the rust on the lower nut and flange on the header that's pretty specific to one small area and not the rest of the flange. That indicates moisture going to the lower portion of the flange and could indicate an exhaust leak at this point as normally moisture on start up should go out the tailpipe on start up. So if there is a small leak - yes heat could be getting by the seal and directed against the coolant pipe - not a good thing if so. Just guessing here.
