Being a shy person, I can't counter what she says
If she's actually wrong on something she's telling you to do then of course you can counter it. You're choosing not to - I don't say this to get at you. I'm point out that you actually do have the power to act differently. I'm not saying it's easy but you can work on your confidence. Just saying "I can't" is the same as giving up. Don't give up on yourself.
she insults me in front of my team.
Ad hominem attacks aren't acceptable - and there's nothing wrong with standing up for yourself here. If she starts insulting you rather than making comments on your work then say something like,
[Coworker], if you have a problem with something I've done or the way I've done it I appreciate if you kept your comments professional. We're all professionals here so let's not descend into schoolyard insults.
And keep it professional yourself - while I understand your frustration with an unpleasant situation (and that you are likely to talk differently here than you would at work) you straight up called her a "sh#t employee" here, if you're going to be asking someone to not insult you personally you can't go around doing it yourself. Should that attitude leak out at work you lose the professional high ground and become no better than her. If you keep it professional and she is unable to refrain from insults then document everything and if you ever find yourself in a position of taking this to an official complaint/grievance you're putting yourself in the most solid position you can.
If this person has been demoted twice already they likely don't have the best reputation already at the company and there's every reason to believe that if she keeps on behaving the way she has she'll only end up damaging that reputation further - until she gets further demoted or let go. Sometimes the best thing you can do is just keep your own nose clean, be the bigger person and let the problem take care of itself.
You say that management has witnessed her insulting you - ignoring for the moment that they should probably have stepped in and well, managed her there and then I think if they witness her doing that in the future while you remain calm and professional you're going to come out of that looking rather good.