As I was writing that I thought 'I know RallyRaider will have a solution' and look who posted first.
Anyway the first method looks interesting, but I would still like the wheel arch to have a lip. As for the second method, that is exactly what I was trying, but gluing the insert onto the chassis before fitting the body. I just felt that the insert should hug the curves of the inside of the body more closely.
Edit: I was trying to use masking tape to make the template, but so far with unsatisfactory results.