Yes you can wrap the pipe and wire in insulation.
The wire could be for 2 things actaully, since local departments sometimes do their own thing. It could be used as a ground for your water with the electrical system, and it should be connected to the metal pipe somewhere. Or it could just be a tracer wire for when the water company or "call before you dig"wants to find the burried pipe underground.
My guess is tracer wire. But it can be covered.