The California property insurance coverage market is present process a dramatic shift. As admitted carriers limit their urge for food for enterprise within the state—significantly in high-risk zones—surplus strains insurers are more and more stepping in to jot down residential property insurance coverage.
As beforehand reported in Insurance coverage Journal—and in line with the Surplus Line Affiliation of California—surplus strains owners insurance coverage transactions surged by 119% within the first half of 2025 in contrast with the identical interval the prior yr. Transactions—together with new enterprise, renewals, endorsements and extensions—rose from 78,309 to 171,551 throughout that span.
This builds on a pointy uptick that started in mid-2023, when main admitted carriers started scaling again protection throughout the state. Business leaders report continued enlargement into rural, semi-rural, and wildland-urban interface areas, the place surplus strains carriers are discovering methods to offer protection amid tightening market situations.
This evolving panorama raises an necessary authorized and coverage query: Should surplus strains insurers adjust to California’s requirement to supply earthquake insurance coverage when writing residential property insurance policies?
The Statutory Framework
California Insurance coverage Code (CIC) §10081 et seq. mandates that admitted insurers providing residential property protection should additionally supply earthquake insurance coverage. This obligation was first launched in 1985 and later expanded by means of Senate Invoice 2596, which added drbrts; provisions. A bulletin from the California Division of Insurance coverage reaffirmed the CDI’s intent to require strict compliance with these statutes. Carriers sometimes comply by providing earthquake protection on their very own paper, by means of affiliated admitted insurers, or through the California Earthquake Authority—a not-for-profit entity providing residential earthquake insurance policies.
Notably, the CDI has confirmed that an insurer’s supply of a CEA coverage—whether or not the “Primary” or the extra expansive “Alternative” product—meets the statutory obligation below Chapter 8.5. As such, the general public coverage aim is evident: residential property insurance coverage have to be paired with a minimum of a minimal supply of earthquake protection to guard California owners from seismic danger.
It is very important level out that the statutes impose greater than a one-time supply requirement. They embody obligations for written disclosures, well timed presents at renewal and particular procedures for policyholder acknowledgment or rejection. Every of those obligations may arguably be prolonged to surplus strains carriers—if the statutes are interpreted to use.
The Surplus Traces Grey Space
But the statutes and bulletins stay silent on whether or not surplus strains carriers are certain by these necessities regarding earthquake protection. This ambiguity is important as a result of, as talked about, surplus strains carriers are writing an rising share of residential insurance policies, and if there’s an earthquake, customers and regulators might declare the excess strains corporations ought to have carried out extra to make sure the insureds had the chance to buy protection.
Surplus strains insurers will not be admitted in California and usually escape most of the obligations imposed on licensed carriers. Nonetheless, they’re topic to pick out Insurance coverage Code provisions, which govern commonplace fireplace coverage phrases and have been interpreted to use to surplus strains carriers. This precedent opens the door to the broader query: Can and will the earthquake supply requirement additionally prolong to the excess strains market?
CDI’s Reasoning
In a 2019 authorized opinion relating to CIC §§677 and 678 (regarding cancellation and nonrenewal), the CDI opined that these provisions apply equally to surplus strains insurers. The division concluded that the plain statutory language, mixed with the buyer safety function of the regulation, helps extending the principles to non-admitted carriers, significantly the place no specific exemption exists.
In that opinion, the division said:
“Whether or not a statute regulating the enterprise of insurance coverage applies to an insurer or to a coverage in a given case isn’t decided completely based mostly upon whether or not the insurer is admitted or nonadmitted.”
Fairly, the CDI emphasised harmonizing statutes with their broader function, cautioning in opposition to a slim studying that may “thwart [the Legislature’s] goal by defending policyholders from arbitrary coverage cancellations and nonrenewals by admitted insurers, whereas failing to impose any restrictions on nonrenewals and cancellations by nonadmitted insurers.”
Utilized to the earthquake insurance coverage supply mandate, this identical reasoning means that surplus strains carriers—writing residential dangers situated in California—could also be anticipated to offer related presents of earthquake protection, even when not explicitly said in CIC Chapter 8.5.
Follow and Market Conduct
Some surplus strains carriers seem like appearing cautiously, partnering with admitted insurers or CEA to make sure earthquake protection is obtainable alongside residential insurance policies. This sensible workaround might sign business recognition of the regulatory dangers of noncompliance, or just religion effort to guard policyholders.
Moreover, the truth that CEA insurance policies can be found to owners no matter their fireplace service eliminates one attainable protection: that earthquake insurance coverage isn’t procurable within the surplus strains context.
A Want for Regulatory Readability
In gentle of this, the present regulatory silence creates confusion not just for surplus strains carriers however for brokers and customers as effectively. The CDI has not but issued formal steerage on this subject, however given its prior opinions, public curiosity mandates, and client safety posture, there’s a compelling case for clarification.
A definitive place—whether or not by bulletin, regulation, or statute—would guarantee constant client safety throughout the admitted and surplus strains markets. This takes on important significance as extra Californians discover themselves insured by means of the excess strains channel.
A Query Price Additional Examine
The surge in surplus strains owners insurance policies raises pressing coverage questions. As issues stand, surplus strains carriers will not be definitively required to supply earthquake insurance coverage, however the CDI’s prior interpretations of different statutes recommend that such a requirement might be imposed or inferred—particularly within the absence of a statutory exemption.
Till clarified, the shortage of uniformity leaves customers susceptible and places surplus strains carriers and brokers in a authorized grey zone. Given the stakes for owners, brokers, insurers, and the regulatory mission of the CDI, this is a matter worthy of deeper examine and regulatory steerage.
Tosaris is a companion within the San Francisco workplace of Michelman & Robinson, LLP. She advises insurers and different Division of Insurance coverage-regulated entities on a spread of points, together with privateness points and regulatory compliance. Cellphone: (415) 882-7770; E-mail: [email protected].
Subjects
Disaster
Pure Disasters
Extra Surplus