For years, homeowners insurance in California was a stable market, with predictable patterns in risk and pricing. However, recent changes have shaken things up significantly. The surplus lines insurance market is experiencing a surge, and 2024 is shaping up to be a crucial year for its development.
In 2024, the surplus lines market saw a remarkable increase in new business, with policies rising from around 31,000 in 2023 to over 150,000—a staggering growth of 383%. This jump highlights how surplus lines insurers are stepping in to fill the gaps left by traditional carriers that have pulled back from the market.
Surplus lines insurers have more flexibility than admitted carriers, which are heavily regulated and must get approval for rates. This allows them to cover risks that traditional insurers often refuse. Historically, surplus lines policies were linked to high-value or unique properties, resulting in higher premiums and complex underwriting. However, the latest data shows a shift towards insuring lower-value properties that were once easily covered by admitted carriers.
In 2024, the average assessed value of new policies dropped to $0.9 million, down 47% from $1.7 million in 2023. Similarly, replacement costs fell by 44%, from $1.6 million to $0.9 million. This indicates that surplus lines are now covering properties that are less complex and more typical of what admitted carriers would insure.
The size of the properties is also changing. The average square footage for newly insured homes decreased by 25%, dropping from 2,837 square feet to 2,131 square feet. Additionally, the average burn probability, which measures wildfire risk, decreased by 31%, indicating that the new properties entering the surplus lines market are in safer areas.
Insurance premiums are following this trend. The average premium for new policies fell by 53%, from $9,556 in 2023 to $4,476 in 2024. This decline reflects the lower value of the properties being insured and suggests a shift in risk profiles that align more with traditional admitted market standards.
The withdrawal of major admitted insurers like Allstate and State Farm has left many homeowners seeking coverage elsewhere, pushing them toward the surplus lines market. The properties now entering this market are significantly smaller and less risky, showing the impact of these withdrawals.
As the surplus lines market adapts to these changes, insurers will need to adjust their underwriting and pricing strategies. While the growth in this sector is a response to immediate needs, long-term stability will depend on balancing the overall insurance landscape in California.