I can see it, though there are other things you’d want to implement alongside it to make it a worthwhile inclusion, instead of a weird niche item.
I’d start by having insecticide generally available (crafted using the mentioned method, possibly with other options; also added to loot wherever you’d find cleaning supplies). You might consider trying to use it in a sprayer (which it’d normally spawn with) to do damage to bug-type enemies, though a little misty squirt of poison is unlikely to slow down a giant mosquito all that much. It might be more effective against large targets in a more-powerful sprayer, like a watergun. Waterguns would be somewhat effective against other types of creatures if filled with acid, if you were willing to use up your valuable acid as a weapon. There might also be a few weird creatures (unworldly horrors) that are especially vulnerable to ordinary water.
On the other hand, if you’ve just gotten attacked by an infestation-type creature, and you have a wound that might have something alive in it, then you could use insecticide on the wound to try and kill the spawn, in the same sense you might disinfect a bite wound. That’d hurt, and maybe poison you a little, but would be rather safer than the infestation. On the other hand, once the initial wound has healed, giving the infestation time to spread, there’s not as much you can do. In that desperate situation, you might drink insecticide, seriously poisoning yourself… which is dangerous, and may or may not cure your infection (a higher dose gives a higher chance of a cure, along with a worse and possibly lethal poisoning).
