I guess I'm a bit late to this thread so hopefully you've resolved to your satisfaction but if not take this advice for what it's worth. You've got a frustrating situation and though I can't provide any clear answers I can tell you want I think. I was a risk management inspector for quite a few of large marine underwriters doing walk-thru and analysis of everything from boatbuilding shops, repair/paint shops and marinas/waterfront structures. I know how the game is played and the rules are sometimes blurred.
First problem I see is you've bundled your business with an agent/company to save a few bucks. My guess is your agent doesn't know a thing about your shop and the risk as they probably deal in primarily homeowner-car insurance. However to get a piece of the action he has told you he can handle your coverage then gets on the phone and shops it to your homeowners company. This company may, or may not, be familiar with commercial wood shop businesses. Actually I'd be surprised if they were. So this company is a bit out of their field so they assign the inspection to an independent who sounds like an operator who steps hard to keep the risk tight and cover his stern. If I'm wrong so far I'd be very surprised.
As a former member of the NFPA I certainly can sympathize with the frustrations involved in reading and following their standards. It's a maze of cross referenced rules that honestly forces a business owner’s hand to buy more and more of their pricey publications. But you should have a least a few relevant publications so you are up to speed and can't get buried and can stand your ground with some questionable inspector. For wood shops I've always relied on NFPA 654 and 664 and a few others like 33 for spray operations. You can find these standards online but trust me when the man comes through the door nothing works as well as a hard copy with yellow hi-liner through material that you're dealing with. Think a big cross and a vampire. Don't let somebody roll over you quoting specs and rules without enough information to stand your ground.
Solution: Pull your shop/business coverage away from this agent and company. Then find a company that really knows the woodworking business and smaller shops and let them quote you. You may be completely surprised at (1) their attitude, (2) their quotes, (3) the amount of coverage and finally working with a risk inspector who actually knows his stuff and understands that the NFPA
‘ guidelines ‘ and the insurance business is not about shutting shop owner’s doors. There is almost always a safe compromise that can be worked out that will satisfy both party's but you need an inspector who has enough technical depth and experience that he/she can figure this out. Without this experience or skills these people just follow the book - black or white, and often miss the intent of the safety standards.
Sorry for the length of this response but it had to be
Good luck
Rick