What's Happening?
The California property insurance market is experiencing a shift as surplus lines insurers increasingly provide residential property insurance due to admitted carriers reducing their coverage in high-risk areas. This change has led to a 119% increase in surplus lines transactions in the first half of 2025 compared to the previous year. A key legal question has emerged: whether surplus lines insurers must comply with California's requirement to offer earthquake insurance alongside residential property policies. The California Insurance Code mandates that admitted insurers offer earthquake insurance, but it is unclear if this applies to surplus lines carriers.
Why It's Important?
The ambiguity surrounding earthquake insurance requirements for surplus lines carriers has significant implications for consumer protection and regulatory compliance. As surplus lines insurers cover more residential properties, the lack of clarity could leave homeowners vulnerable in the event of an earthquake. This issue is critical for ensuring consistent consumer protection across both admitted and surplus lines markets. The California Department of Insurance's stance on this matter could influence the regulatory landscape and impact how surplus lines carriers operate in the state.
Beyond the Headlines
The legal gray area regarding earthquake insurance offers by surplus lines carriers highlights broader issues of regulatory oversight and consumer protection. The California Department of Insurance may need to issue formal guidance to clarify the obligations of surplus lines insurers. This situation underscores the importance of harmonizing statutes with their broader purpose to protect policyholders, and it may prompt further study and regulatory action to ensure uniformity in insurance offerings.
