Greetings,
The outer shell conductors of a USB cable such as the one pictured function as shields. It is entirely acceptable for them to be uninsulated, in the same way that it is acceptable for the metal chassis of a desktop PC, a refrigerator, a microwave, a washing machine, or other similar appliances to be uninsulated. In each case, the exposed metal chassis is connected to the ground (3rd prong) contact on the appliance’s AC line input, in order to reduce risk of electric shock and guard the enclosed electronics against damage from static discharge.
