Add the account to insync like it’s the first time; not using the existing insync configuration for the account. The first time you run insync v3 it gives the option to use existing account information (essentially import from previous versions of insync) or add a new account.
Initially I chose to use an existing account which led to the reported issues. So I removed the account from insync and added the account again but this time as I would with a new account, you just adjust the base folder on setup. For additional accounts, I skipped adding an existing and just added them as new for the initial setup.
Unfortunately, this means insync will do a first time sync which transfers all your files again even though they’re already local and in the cloud. As it does this it builds a fresh file database instead of relying on an imported one and solved the issue.