There is no equivalent word for "traffic" in Icelandic.
I kid, they probably have a word, and there might be some traffic in the city proper, but once you get out of the city, "traffic" is likely sheep on the road or horses alongside, or a few cars pulled over taking pictures of something glorious.
Insurance is important in Iceland as it is easy to get a car scratched or dinged, so shop carefully, but the only extra thing you should do in Iceland is to thoroughly document the condition of the car when you pick it up and when you drop it off. Pictures or video of all surfaces to show all existing dings and scratches will save you from possible bad surprises upon or after return. Once you've done this, driving in Iceland is pretty simple