I think although each of wire has insulation but they are separated by a distance at plug i.e. where it connects to appliance.
Assertion A is correct.
A short circuit can result in the release of a large amount of energy in the form of heat. That, in turn, can ignite materials and cause a fire. What prevents wires from short-circuiting is the separation of the conductors by electrical insulation. In the case of wires it's the insulation on the surface of the wires.
Most electrical insulations consist of polymeric materials, chiefly plastics. At elevated temperatures (temperatures that exceed the temperature rating of the insulation) the insulation becomes compromised. This can be a long term degradation in the electrical and thermal properties of the material. It can also occur rapidly at very high temperatures that cause the plastic to melt and come off the conductor resulting in a short-circuit.
RESPONSE TO EDIT:
I'm assuming the cord conductors where they separate at the entrance to the appliance are encapsulated in a female plug body, since cord conductors are never split up where the enter the appliance.
Clearly, if the conductors are reliably separated there is a low probability of shorting. However, there is always the possibility of the connector body overheating due to improper or faulty connections between the conductors and the connector pins (typically crimp type connections), which could lead to arcing and breakdown of the insulation in the connector. The risk is higher for high amperage products such as heating appliances.
Then you also need to consider the wiring inside the appliance, which is called internal wiring, where live and neutral conductors intermingle. Should these conductors overheat due, for example, to faults in the appliance (e.g., failure of temperature controls) insulation overheating and short-circuiting is possible.
Finally, there the cord conductors of going to the left of your diagram to the plug and receptacle. The cord conductor insulation, being exposed, is subject to possible physical damage to the insulation.
Bottom line: All things considered, the risk of insulation failure and short circuiting leading to fire is greater the higher the temperatures the insulation is exposed to.
Hope this helps.