Traps water, can cause corrosion depending on what material the exhaust pipe is made from, can cause cracking from excessive heat depending on what material the exhaust pipe is made from (it may rely on being exposed to radiate enough heat to keep the temperature of the material within bounds). Having said that, if the exhaust routing takes it too close to something heat sensitive (be it a rear shock, or your shins), ya gotta do what ya gotta do. I would confine the exhaust wrap to the immediate vicinity of that trouble spot.
If it were worth doing in general, OEMs would be doing it, and professional racing teams would be doing it, but they don't. Usually, a heat shield is a better design choice for the above-mentioned trouble spots.