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—notably in high-risk zones—surplus traces insurers are more and more stepping in to write down residential property insurance coverage.
As beforehand reported in Insurance coverage Journal—and in response to the Surplus Line Affiliation of California—surplus traces 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 growth into rural, semi-rural, and wildland-urban interface areas, the place surplus traces carriers are discovering methods to supply protection amid tightening market circumstances.
This evolving panorama raises an necessary authorized and coverage query: Should surplus traces 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 provide earthquake insurance coverage. This obligation was first launched in 1985 and later expanded by way 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 usually comply by providing earthquake protection on their very own paper, by way of 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 provide of a CEA coverage—whether or not the “Primary” or the extra expansive “Alternative” product—meets the statutory obligation underneath Chapter 8.5. As such, the general public coverage purpose is evident: residential property insurance coverage have to be paired with no less than a minimal provide 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 provide requirement. They embrace obligations for written disclosures, well timed affords at renewal and particular procedures for policyholder acknowledgment or rejection. Every of those obligations may arguably be prolonged to surplus traces 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 traces carriers are certain by these necessities regarding earthquake protection. This ambiguity is vital as a result of, as talked about, surplus traces carriers are writing an rising share of residential insurance policies, and if there’s an earthquake, customers and regulators could declare the excess traces corporations ought to have finished extra to make sure the insureds had the chance to buy protection.
Surplus traces insurers should 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 customary hearth coverage phrases and have been interpreted to use to surplus traces carriers. This precedent opens the door to the broader query: Can and may the earthquake provide requirement additionally lengthen to the excess traces market?
CDI’s Reasoning
In a 2019 authorized opinion concerning CIC §§677 and 678 (regarding cancellation and nonrenewal), the CDI opined that these provisions apply equally to surplus traces insurers. The division concluded that the plain statutory language, mixed with the buyer safety function of the legislation, helps extending the foundations to non-admitted carriers, notably the place no categorical exemption exists.
In that opinion, the division acknowledged:
“Whether or not a statute regulating the enterprise of insurance coverage applies to an insurer or to a coverage in a given case shouldn’t be decided completely primarily based upon whether or not the insurer is admitted or nonadmitted.”
Quite, the CDI emphasised harmonizing statutes with their broader function, cautioning in opposition to 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 provide mandate, this identical reasoning means that surplus traces carriers—writing residential dangers positioned in California—could also be anticipated to supply related affords of earthquake protection, even when not explicitly acknowledged in CIC Chapter 8.5.
Follow and Market Conduct
Some surplus traces carriers look like performing cautiously, partnering with admitted insurers or CEA to make sure earthquake protection is obtainable alongside residential insurance policies. This sensible workaround could sign trade recognition of the regulatory dangers of noncompliance, or just a very good religion effort to guard policyholders.
Moreover, the truth that CEA insurance policies can be found to owners no matter their hearth service eliminates one potential protection: that earthquake insurance coverage shouldn’t be procurable within the surplus traces context.
A Want for Regulatory Readability
In gentle of this, the present regulatory silence creates confusion not just for surplus traces carriers however for brokers and customers as nicely. The CDI has not but issued formal steerage on this concern, 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 traces markets. This takes on important significance as extra Californians discover themselves insured by way of the excess traces channel.
A Query Price Additional Research
The surge in surplus traces owners insurance policies raises pressing coverage questions. As issues stand, surplus traces carriers should not definitively required to supply earthquake insurance coverage, however the CDI’s prior interpretations of different statutes counsel that such a requirement may very well be imposed or inferred—particularly within the absence of a statutory exemption.
Till clarified, the dearth of uniformity leaves customers weak and places surplus traces 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 research and regulatory steerage.
Tosaris is a associate 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; Electronic mail: etosaris@mrllp.com.
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