I think this depends very much on the insurer. I've had 2 claims on modified cars where the mods were undeclared - both insurers took the attitude that the mods had no bearing on the incident and paid out without fuss. My A3 suffered an electrical fire - unlikely to have been caused by a lowering kit, leather seats and a S/S exhaust, and a 205 Gti that slid on black ice on a corner and barrel rolled into a field - the undeclared cage and 4 points probably saved my life.
Incidentally, most modified insurers (flux etc) wont cover for the replacement cost of modifications (well worth checking out), so the exorbitant premium you pay will, in the event of an accident, net you a standard car in return. Worth a mention that :lol: