The answer to your question depends on the source of flooding. If flood water was contaminated, than replacement is the only solution. Clean water on drywall will usually swell the materia and give it a damaged look. It can dry if you live in an area of low humidity. If it is an insulated wall it needs to be replaced...period.

Most drywall replacement is only for a the exposed material up to a few inches above the flood line. Cut a straigh line, replace the drywall, tape and done.

Drywall is an inexpensive repair compared to mold remediation. IMO, your insurance company is saving pennies on the dollar.

There is a product called MicroRid Powder Concentrate that you mix with water. If you spray it on shhetrock it will penetrate it several mm's and get rid of it. It is available at www.twin-chemicals.com