Forbes mayor Phyllis Miller says some people with existing policies have received letters saying they will not be renewed, while others say insurers refused to cover them to begin with.
Insurance Council of Australia (ICA) chief executive Andrew Hall says "by and large insurers are sticking by their customers" but insists changes are required in towns like Forbes where eight homes were completely inundated and 140 were damaged.
"Now is the time to say to the government we need a flood levee or we need to do something about those particular homes so this doesn't happen again," he told ABC TV on Wednesday.
Mr Hall rejected accusations the industry was putting profits before people, saying $13 billion had been paid out in disaster claims since the catastrophic bushfires of 2019–20.
"There are towns like Eugowra ... where the traditional insurance product is now very hard to provide," he said.
"We have to think about other types of insurance products that people can access that will require partnership with the state and federal governments.
"The first thing they need to do is ... (begin) building the flood levees that the towns have been asking for for years and years."
Meanwhile, showers are beginning to clear across NSW but flood recovery efforts in the state's central west and Riverina regions have only just begun.
The State Emergency Service has welcomed the weather reprieve for flood-affected communities amid hopes it will continue for the rest of the week.
The Bureau of Meteorology says major flooding is still occurring at Condobolin and Euabalong, where the Lachlan River may peak at eight metres by Thursday - higher than the 1952 floods.
The main Barwong-Darling river flood peak is now approaching Bourke, where levels have broken the 1998 flood record, with a peak expected also on Thursday.
The Murrumbidgee River at Balranald Weir Downstream is also heading towards a 7.3m peak.
The key areas of focus for the NSW SES in the next three days include communities along the Lachlan - as well as the towns of Narrandera, Walgett, Bourke, Hay, Albury, Echuca, Mildura and Wentworth, and Deniliquin and Moulamein.
Prolonged periods of isolation continue for many communities and rural properties across NSW.
The Riverina town of Moulamein is isolated and its 500 residents were urged to evacuate under escort on Tuesday or face being stranded for weeks.
The NSW SES is assessing the potential for further communities to be isolated in the weeks ahead.
In the 24 hours until Wednesday, the SES received 270 requests for help and performed three flood rescues.
There are 89 active warnings, 14 at the emergency level.
Damaging winds that have battered the state this week have eased, with a severe weather warning cancelled.
The BOM says a late-season burst of cold and windy weather has been moving over southeast Australia.
In a reprieve for flooded towns, showers will become more isolated and contract to coastal and mountain areas.
A high pressure system is developing over southern Australia from Wednesday, bringing a gradual clearing of conditions and warmer temperatures later this week.
However, as waters slip downstream, the flood response will only intensify and numerous inland roads remain cut off.
As recovery efforts continue, the BOM and CSIRO have released the State of Climate Report 2022 on Wednesday.
The biennial report shows heavy rainfall events are becoming more intense and the number of short-duration heavy rainfall events is expected to increase in the future.
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