The California property insurance coverage market is present process a dramatic shift. As admitted carriers prohibit their urge for food for enterprise within the state—significantly in high-risk zones—surplus strains insurers are more and more stepping in to put in writing residential property insurance coverage.
As beforehand reported in Insurance coverage Journal—and in keeping 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 12 months. 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 supply 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 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 usually comply by providing earthquake protection on their very own paper, by affiliated admitted insurers, or by way of 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 objective is obvious: residential property insurance coverage should be paired with no less than a minimal supply of earthquake protection to guard California owners from seismic threat.
It is very important level out that the statutes impose greater than a one-time supply requirement. They embrace obligations for written disclosures, well timed presents at renewal and particular procedures for policyholder acknowledgment or rejection. Every of those obligations might arguably be prolonged to surplus strains carriers—if the statutes are interpreted to use.
The Surplus Strains 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 essential 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, shoppers 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 usually are not admitted in California and customarily escape most of the obligations imposed on licensed carriers. Nonetheless, they’re topic to pick out Insurance coverage Code provisions, which govern normal hearth coverage phrases and have been interpreted to use to surplus strains carriers. This precedent opens the door to the broader query: Can and may the earthquake supply requirement additionally lengthen 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 patron safety objective of the regulation, helps extending the foundations to non-admitted carriers, significantly the place no categorical 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 is just not decided completely primarily based upon whether or not the insurer is admitted or nonadmitted.”
Somewhat, the CDI emphasised harmonizing statutes with their broader objective, cautioning towards a slender studying that might “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 similar reasoning means that surplus strains carriers—writing residential dangers situated in California—could also be anticipated to supply related presents of earthquake protection, even when not explicitly said in CIC Chapter 8.5.
Observe 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 trade recognition of the regulatory dangers of noncompliance, or just a great religion effort to guard policyholders.
Moreover, the truth that CEA insurance policies can be found to owners no matter their hearth provider eliminates one doable protection: that earthquake insurance coverage is just not 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 shoppers as properly. The CDI has not but issued formal steerage on this situation, however given its prior opinions, public curiosity mandates, and shopper safety posture, there’s a compelling case for clarification.
A definitive place—whether or not by bulletin, regulation, or statute—would guarantee constant shopper safety throughout the admitted and surplus strains markets. This takes on important significance as extra Californians discover themselves insured by the excess strains channel.
A Query Price Additional Research
The surge in surplus strains owners insurance policies raises pressing coverage questions. As issues stand, surplus strains carriers usually are not 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 dearth of uniformity leaves shoppers 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 variety of points, together with privateness points and regulatory compliance. Cellphone: (415) 882-7770; E mail: etosaris@mrllp.com.
Subjects
Disaster
Pure Disasters
Extra Surplus
