Is it possible to insert an image as a background with AWS media convert

AWS MediaConvert does offer the ability for image insertion, both as a static image or as a motion image. You can find details about the image insertion ability here https://docs.aws.amazon.com/mediaconvert/latest/ug/graphic-overlay.html

There is also the choice of input overlay vs output overlay. https://docs.aws.amazon.com/mediaconvert/latest/ug/choosing-between-input-overlay-and-output-overlay.html

As to using a larger image to insert around a smaller source, that may be challenging. Input sources will be scaled up or down to the output resolutions. Adding a 1920x1080 image edge overlay to a 1280x720 source, with an output of 1920x1080, would have that edge image covering the scaled up borders of 1280x720 source.