準備されたステートメントはすでに存在します

実行してみてください：

conn.exec("DEALLOCATE name_of_prepared_statement")

あなたの例では：

conn.exec("DEALLOCATE insert_values")

簡単なテストで、私のirbで機能しています：

1.8.7 :001 > require 'rubygems'
  => true
1.8.7 :002 > require 'pg'
  => true
1.8.7 :003 > conn = PGconn.connect(:host => 'localhost', :port => 5912, :user => 'test', :dbname => 'test' )
  => #<PGconn:0x7fe6ac703970> 
1.8.7 :005 > conn.prepare("insert_values", "select * from data where id < $1")
  => #<PGresult:0x7fe6ac6b2e58> 
1.8.7 :006 > conn.prepare("insert_values", "select * from data where id < $1 and id >   $2")
  PGError: ERROR:  prepared statement "insert_values" already exists

  from (irb):6:in 'prepare'
  from (irb):6
1.8.7 :007 > conn.prepare("insert_values", "select * from data where id < $1")
  PGError: ERROR:  prepared statement "insert_values" already exists

  from (irb):7:in 'prepare'
  from (irb):7
1.8.7 :008 > conn.exec("DEALLOCATE insert_values")
  => #<PGresult:0x7fe6ac6738c0> 
1.8.7 :009 > conn.prepare("insert_values", "select * from data where id < $1")
  => #<PGresult:0x7fe6ac665fe0> 
1.8.7 :010 > conn.exec_prepared("insert_values",[200])
  => #<PGresult:0x7fe6ac65d188> 
1.8.7 :011 > conn.exec("DEALLOCATE insert_values")
  => #<PGresult:0x7fe6ac654df8> 
1.8.7 :012 > conn.exec_prepared("insert_values",[200])
  PGError: ERROR:  prepared statement "insert_values" does not exist

  from (irb):12:in 'exec_prepared'
  from (irb):12