The devastation in L.A. could become the most expensive wildfire disaster in U.S. history and push more homeowners across the state into a less-regulated insurance market with higher premiums and less protection.
While it will take months or even years to understand the full scope of the damage, experts predict that a domino effect could lead more people to what’s known as surplus line home insurance, provided by carriers not licensed in California.
These “non-admitted” carriers aren’t as closely regulated by the Department of Insurance and claims aren’t covered by a state guarantee if the provider runs out of money.
The carriers have more flexibility to design policies and raise rates without regulator approval, which often translates to higher premiums and coverage exclusions. On the other hand, a non-admitted carrier might insure a high-risk property, such as one in a fire zone, that was dropped by an admitted provider, albeit with a steep premium or a deductible.
In short, “they are more expensive, with more limited coverage, and less regulated,” said Cyn Wang, head of business development at SF-based broker Wang Insurance. She cited a case in which the insurance premium for a small apartment building surged 500% when it couldn’t secure an admitted provider.
Historically, her agency placed only risky properties, like marijuana dispensaries and SROs, with these carriers. But as major insurers like State Farm, Farmers Insurance, Allstate, and Travelers have either stopped writing new policies in California or fled the state entirely in the last several years, that dynamic has changed. Agents must try to place a client with three admitted carriers before turning to other options — and they increasingly have to.
Wang and fellow brokers are placing “substantially more” clients with either non-admitted carriers or the California insurer of last resort, the FAIR Plan. The latter sometimes isn’t even an option, according to Wang, if a client needs to secure coverage quickly.
“The FAIR Plan has very slow service,” she said. “We’ll often submit things to them and not even have a response — they’re just underwater and overwhelmed.”
Other clients just can’t fit into FAIR, which offers residential policies up to a $3 million limit. After State Farm dropped nearly 70% of its policies in the Pacific Palisades area, citing the high risk, the owners of those homes had little choice but to seek out non-admitted insurance policies.
‘Desperate measures’
As traditional insurers have fled, non-admitted providers are filling in the gap. That makes some consumer advocates nervous.
“Up until this crisis started to develop a few years ago, I would never have recommended to any consumer that they even consider insuring their home through a surplus line insurer,” said Amy Bach, executive director of the nonprofit United Policyholders. “But desperate times call for desperate measures.”
Bach’s reasons for avoiding those providers include the lack of a safety net, unregulated rate hikes, and the potential for “funky” exclusions, like a wildfire deductible.
United Policyholders advises consumers who can’t otherwise find a policy to thoroughly research the differences between the FAIR Plan and available surplus line options and “try to compare apples to apples, as best as you can.”
While a surplus line carrier will likely provide more coverage than the bare-bones FAIR Plan, the organization urges consumers to investigate the financial strength of a non-admitted provider, including by looking up its AM Best rating.
Janet Ruiz, communications director for the Insurance Information Institute, said no non-admitted carrier has become insolvent in California. She describes them as “usually very sound and stable” and “very important” in the state’s insurance market.
Indeed, use of these carriers has surged in recent years. The total number of surplus line homeowners’ transactions in the state jumped from 50,372 in 2023 to 164,930 in 2024, according to the Surplus Line Association of California. (Transactions are defined as new business, renewals, endorsements, and extensions.)
The number of surplus line carriers issuing California homeowners policies has also increased, from 102 in 2015 to 159 in 2024, according to the organization. Non-admitted carriers made up roughly 3.8% of the homeowners insurance market share in California in 2023, according to S&P Global Market Intelligence, around the same proportion as the FAIR Plan.
One of the hallmarks of the non-admitted carrier market is that providers are not restricted to the state’s typical procedure when raising rates. Admitted insurance providers essentially have to prove to the Department of Insurance why proposed rate hikes are financially necessary, a process that can take months. Until recently, carriers also couldn’t factor forward-looking modeling or the cost of reinsurance (essentially, insurance for insurance companies) into their consumer rates, though that changed in late 2024.
Non-admitted insurers, on the other hand, can independently decide their premiums.
“They are not subject to the same rate restrictions and are free to charge market rates,” said Joel Laucher, a consumer advocate with United Policyholders. Their rates can go up more, and faster, than those of admitted insurers.
That has been the case in California: Premiums from non-admitted insurers rose 39.1% in 2023, while those of admitted insurers were up 9.3%, according to S&P Global Market Intelligence.
Non-admitted carriers say rate increases are necessary adjustments to the risks of climate change.
“They have higher rates because the California admitted carriers have had their rates be too low for many years and are not quite adequate,” said Ruiz.
Despite the differences, non-admitted providers don’t necessarily deserve their “scarlet letter,” according to Karl Susman, president of the Susman Insurance Agency in Los Angeles and an industry analyst.
“Being a non-admitted carrier doesn’t automatically mean bad,” he said. “It’s just a different business model that that carrier is going by.”
Consumers historically haven’t trusted non-admitted carriers, he added, but a provider’s status “doesn’t make it an innately better or worse company.” For example, he said, Lloyd’s of London provides surplus insurance in California, and that company is unlikely to become insolvent in the event of a major disaster.
On the other end of the spectrum are smaller, fast-growing, non-admitted carriers that don’t have a large legacy brand or a major pool of cash to lean on.
More admitted carriers on the horizon
Robert Feldman, founder of insurance company WOWS, predicts that the L.A. fires could drive more admitted insurers out of California, as they pay thousands of claims for homes damaged or destroyed.
“This could be a crippling event for multiple admitted carriers in California,” he said. That, in turn, could drive more surplus providers to set up shop to meet the need. “I think there’s going to be a lot more non-admitted carriers in the space,” he said. “They have the flexibility.”
Meanwhile, some providers are launching non-admitted subsidiaries. For example, Allstate stopped writing policies in California as an admitted insurer, but its subsidiary North Light will write them as a surplus line provider.
That, according to Bach, is a problem. If insurance providers are active only in the non-admitted market, they are no longer responsible for contributing to the FAIR Plan or helping backstop the program if the insurer of last resort runs out of money.
“One of the things that the Legislature is going to be grappling with in the coming years is, should there be more limitations on surplus lines insurers?” the United Policyholders executive said.
One thing that everyone agrees on is that prices are likely to get higher for consumers, regardless of which type of company provides their coverage.
Some experts say the upswing in non-admitted insurers is evidence that certain areas just shouldn’t have homes. If a ZIP Code is prone to wildfires (or hurricanes or flooding), then it should be expensive to live there, or maybe not an option at all, the argument goes.
Wang puts the focus on the carrot instead of the stick: “As policy makers, as insurance industry professionals, as urban planners, we need to look at new models in the future that reward development and ownership in lower-risk areas.”