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Can insurers legally stop covering high-risk homes?

On Behalf of | Feb 4, 2025 | Insurance Claims |

Insurance companies are pulling out of areas that face high risks of wildfires, floods, and hurricanes. This makes it harder for people to protect their homes and raises important legal questions about what rights homeowners have and what actions they can take.

State and federal regulations

New Jersey has strict rules about how insurance companies cancel or refuse to renew policies. Insurers must provide written notice at least 30 days before dropping a policyholder. The state also requires insurance companies to justify nonrenewals and cannot cancel policies unfairly. New Jersey’s FAIR Plan offers last-resort insurance for homeowners who struggle to find private coverage.

At the federal level, the National Flood Insurance Program (NFIP) helps homeowners in high-risk flood zones. However, NFIP faces financial difficulties and may not always provide sufficient coverage. New Jersey lawmakers continue to push for reforms to ensure residents can access affordable and reliable insurance in high-risk areas.

Unfair insurance practices

When insurance companies leave high-risk areas, they still have to follow fair business rules. If they mislead people about their policies, cancel coverage without warning, or treat certain customers unfairly, they may face lawsuits. Courts can force insurance companies to restore coverage or pay damages if they break the rules.

Effects on property values and mortgages

Homeowners need insurance to meet mortgage requirements. If they lose coverage, banks might demand expensive alternatives or even take legal action. As more homeowners lose insurance, fights between homeowners, insurers, and lenders may increase. Lawmakers may have to create new rules to fix this issue.

Legal action and consumer protection

Homeowners may sue insurance companies if they believe cancellations break contract agreements or state laws. Consumer groups and lawmakers are working to protect homeowners and prevent unfair policy cancellations. Some lawsuits argue that insurance companies exaggerate risks or shift costs unfairly onto customers.

Governments and insurance companies are looking for solutions to balance financial risks with consumer needs. State-run insurance programs, stricter building codes, and better climate protection measures could help keep coverage available. Ongoing legal challenges and policy updates will determine the future of insurance in these high-risk areas.

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