Sorry to play Devil's advocate as I know you're an experienced tourist, but I can't imagine where you'd be able to use a bivy unless at a campground, in which case it sounds like you'll have a bed. The terrain is so rocky/volcanic, trying to tuck into a bivy and sleeping bag on the side of the road sounds like torture.

Also, the only bugs you'll see are around Myvatn. The island does a great job of blowing away almost all insects. The birds, however, are a different story. You'll need eyes in the back of your head!