Crashed car what to do?

[Gavin@gtini]

Right had a small bump today when I rear ended a new driver who stopped at an empty roundabout before pulling off again and unfortunately as I was looking to see if the road was clear to proceed after her, I had not noticed she'd stopped. Slammed on the brakes but still hit her at 10mph or so. Only a scratch to her bumper (MKV Jetta) and she was extremely apologetic about hesitating at the roundabout in front of me but at the end of the day I hit her so it's mostly my fault as I wasn't paying full attention.
Now my car was bought as a CAT D one owner car and I got it cheap for its mileage, condition, history etc. As it was really clean apart from the damage in a previous accident which has been fixed to a very high standard. I love the car and honestly would never part with it. It's a close to being as good as my Bora as I could ever ask. I've spent some money respraying it, retrofitted full W8 lights, bumper with washers, self levelling, dab radio and other sound bits, added isofix for the daughters seat and converted all lights to LEDs etc. Similar non cat d cars in my location are on sale for between 2.5-3k which isn't anywhere near what I paid for mine.
My car doesn't need any exterior body panels but the front bumper has two small cracks that can be repaired, the nsf wing and bonnet are out of alignment due to all the plastic mounting frames behind the bumper being trashed, grille is scrap, and I need a radiator and aircon condenser as they're badly bent but not split open, oh and thank goodness my W8 bi-xenons are on my garage floor ATM!!!
My insurance accident management company recon I should allow them to cat d the car again, buy it back and fix it myself and pocket the difference. Is this legal or right?
I'm not sure how I'll fair with the women I hit as her car at worst needs the rear bumper spraying but it's a personal injury claim I'm most concerned about.

Any thoughts or advice greatly appreciated.

Gavin