The Los Angeles wildfires that kicked off 2025 not only sped up a statewide homeowners insurance market pullback, they also played a part in an ongoing reshaping of California\u2019s surplus lines market, according to a new report.<\/p>\n
The state\u2019s surplus lines insurance market has entered a new phase that can be best defined as a \u201cstructural shift,\u201d a market analysis from The Surplus Line Association of California shows.<\/p>\n
The SLACAL report is part of the group\u2019s annual report<\/a>. It examines how legal risk, catastrophe exposure, capital constraints and regulatory friction reshaped where risk is placed and how coverage is accessed in the state\u2019s surplus lines marketplace.<\/p>\n Related: Bill Introduced to \u2018Transform\u2019 the California FAIR Plan<\/a><\/p>\n The analysis, which includes policy data and insight from executives, shows a sustained reallocation of risk from the standard market into surplus lines.<\/p>\n In the last few years, the new policy counts in California surplus lines has swelled more than 500%. It is part of a change that has been ongoing for a dozen years, partly driven by the plague of wildfires in California in recent years. Fourteen of top 20 destructive wildfires in state history have occurred in the last 10 years, according to CalFire statistics<\/a>.<\/p>\n Benjamin J. McKay, CEO and executive director of SLACAL, views the L.A. fires as the exclamation point in a years-long process unfolding in the state\u2019s insurance market that has made it difficult for admitted carriers to provide homeowners insurance in the state.<\/p>\n Proposition 103, which mandates rate reviews and an intervenor process among other regulations, has been called out by the insurance industry for preventing carriers from accurately pricing for risk and getting appropriate rates in California.<\/p>\n \u201cProp 103 really made it challenging for admitted carriers to get rate, and for years and years and years, it didn\u2019t matter because (admitted carriers) could make it up with investment income,\u201d McKay said.<\/p>\n In addition to investment income, carriers were aided by profit from other lines, such as selling auto coverage to the same homeowners insurance customer.<\/p>\n \u201cAnd then about 15 years ago that stopped being the reality, and now they had to make an underwriting profit, and once they had to make an underwriting profit, they couldn\u2019t do it in California because they couldn\u2019t get rate,\u201d McKay said. \u201cI think that was really the tipping point, and I think the L.A. fires are really just the exclamation point. That\u2019s when everyone realized this is where we\u2019re going into a surplus lines world for homeowners.\u201d<\/p>\n The movement into surplus lines also included homeowners going into the California Fair Plan, the insurer of last resort with limited coverage. That migration prompted the state\u2019s insurance regulator to push changes to the Fair Plan, including most recently a bill to initiate reforms to the FAIR Plan<\/a> that proponents say will strengthen claims handling, expand coverage options, and improve transparency for wildfire survivors.<\/p>\n According to the SLACAL report, the standard market\u2019s pullback is no longer isolated to high-risk or rural regions, but it increasingly affects urban and suburban areas. This is what has led to even more personal lines activity entering the surplus lines market.<\/p>\n Related: The Return Period for An LA Wildfire-Scale Event May Be Shorter Than You Think<\/a><\/p>\n \u201cThe year 2025 marked a decisive turning point for California\u2019s property insurance landscape,\u201d the report states. \u201cWhat began as a gradual pullback by admitted carriers in recent years intensified into a sustained contraction in admitted availability as observed through spillover into surplus lines.\u201d<\/p>\n That shift coincided with the worsening wildfire exposures as well as broader market pressures that continued to strain coverage accessibility across large portions of the state.<\/p>\n Insurers have paid more than $22.4 billion on tens of thousands of claims from the L.A. wildfires, according to the latest data from the California Department of Insurance. A one-year report on the L.A. wildfires from Morningstar DBS Research called the fires \u201ca significant stress event<\/a>\u201d for California\u2019s property\/casualty insurance sector.<\/p>\n The L.A. wildfires lead to several changes to insurance regulations, including fast-tracking rate reviews to get insurers to return to writing homeowners insurance in risky areas, enabling the use of more sophisticated catastrophe modeling and allowing carriers to factor reinsurance rates into pricing.<\/p>\n