"Question - can there be a fire hazard from throwing the insulation back over it (the housing)?"
Answer: YES!!! Get back up there and remove the insulation! The installer had a good reason for keeping it back: unless a housing is rated "IC" for insulation-compatible, the insulation must be kept back usually about 3" from the can. There is a very real fire hazard with insulation touching non-IC cans. Correct this immediately.