I changed from an O-A to an O last year in Chiang Mai. I came in on a Visa on Arrival.
They do the change here but I know some offices will not do the change (maybe because there is an incentive from Insurance Companies if they keep you on an O-A). But, as you say, the Insurance is pretty useless and the O Visa has no insurance requirement so is much more appealing. I know Chiang Rai won't do the transfer as well as some other offices.
Procedure is a bit longwinded but if you do what they say properly, although it may seem illogical to you, then you will get there in the end.
Don't get upset about the bureaucratic requirements in Thailand, it is something you have to get used to to make your life easier here. Western logic doesn't apply in Thailand so just do everything as they say and it will make your life easier.
Good Luck with everything!!