Extreme Weather Drives Growth of Surplus Insurance Plans
More homeowners across the United States are turning to a type of property insurance that offers fewer protections as traditional insurers retreat from communities increasingly exposed to wildfires, hurricanes and other extreme weather.
The growing use of surplus lines insurance, also known as excess insurance, reflects a widening gap in the U.S. homeowners insurance market. These policies can provide coverage when conventional insurers are unwilling to insure a property, but they often come with higher costs, narrower protections and less regulatory oversight.
A Washington Post analysis found that premiums written under surplus lines nearly tripled nationwide over the past five years, rising from about $1.5 billion in 2021 to $4.1 billion in 2025. The increase comes as insurers face mounting losses from disasters and become increasingly cautious about taking on properties in high-risk areas.
Why Traditional Home Insurance Is Becoming Harder to Find
For decades, homeowners generally purchased insurance from companies operating in the standard, or admitted, insurance market. Those insurers are subject to extensive state regulation governing rates, policy forms and financial requirements.
That model is becoming increasingly difficult to sustain in areas repeatedly hit by expensive disasters.
Wildfires, hurricanes and other severe weather events can generate enormous numbers of claims at the same time. Insurers must then pay for rebuilding homes at a time when construction materials, labor and other costs are already elevated.
In response, some companies have raised premiums, reduced coverage, stopped writing new policies or declined to renew existing customers.
The result is a growing number of homeowners who still need insurance but cannot obtain a conventional policy.
Surplus Lines Become a Safety Valve
Surplus insurance was historically used for unusual, commercial or especially difficult-to-insure risks.
Today, however, it is increasingly being used by homeowners who have exhausted their options in the regular market.
Independent insurance brokers can direct customers toward surplus carriers when conventional companies will not provide coverage. In some cases, homeowners may also find these insurers through direct marketing.
The policies provide an important safety valve because they allow properties that standard insurers consider too risky to remain insured.
But the trade-off is significant.
Surplus carriers generally have greater flexibility to determine prices and policy terms. Their contracts can contain exclusions and restrictions that would not necessarily appear in a conventional homeowners policy.
California Is Seeing One of the Biggest Shifts
California has become one of the clearest examples of the changing insurance landscape.
According to the Washington Post analysis, surplus premiums in California increased from approximately $135 million in 2021 to nearly $1.3 billion in 2025. Surplus policies now account for about 7 percent of homeowners premiums in the state, compared with roughly 1 percent five years earlier.
The state's wildfire crisis has pushed insurers to reconsider their exposure to high-risk communities.
California homeowners who cannot obtain private coverage can also turn to the state-backed FAIR Plan, another last-resort option. Stanford research cited by The Post found that the number of Californians using the FAIR Plan has tripled since 2020.
For some homeowners, the choice is no longer between several competing insurance companies. Instead, they may be choosing between a state-backed plan, a surplus carrier or going without coverage.
Lower Premium Payouts Raise Concerns
The growing popularity of surplus insurance does not necessarily mean homeowners are receiving equivalent protection.
Data analyzed by The Washington Post shows that surplus insurers paid an average of 36 cents in claims for every dollar of premiums collected during the five years through 2025. Admitted insurers paid an average of 58 cents per premium dollar during the same period.
The difference became especially striking in 2024, when surplus carriers paid only about 15 cents in claims for every dollar of premiums collected. Payouts increased sharply in 2025 following the Los Angeles-area fires.
Those figures do not by themselves establish that a particular surplus insurer will underpay a legitimate claim. Surplus insurers can specialize in different types of properties and risks, meaning their claims experience can vary considerably.
Still, consumer advocates argue that homeowners need to understand precisely what they are buying.
Fewer Protections Can Mean Greater Financial Risk
One of the biggest concerns surrounding surplus policies is their regulatory structure.
Surplus carriers are generally exempt from some of the requirements imposed on insurers operating in the admitted market. That flexibility allows them to offer coverage for properties that traditional insurers may reject.
It also means homeowners may have fewer consumer protections.
Some surplus policies contain arbitration provisions, restrictions on contractors or claims-adjustment procedures that differ from conventional policies. Certain policies may also carry substantial deductibles or exclude specific types of weather-related damage.
For a homeowner living in a wildfire-prone region, a policy that technically provides insurance but excludes or limits the most likely source of damage can create a false sense of security.
Major Insurance Companies Are Part of the Market
The surplus insurance market is not simply made up of obscure companies operating outside the mainstream insurance industry.
The Post's review found that 10 companies account for slightly more than half of surplus premiums nationwide. Major insurance groups, including Lloyd's of London and Berkshire Hathaway, have significant positions in the market.
AIG also provides an example of how the conventional and surplus markets can overlap.
In California, AIG's standard homeowners business declined dramatically while its surplus-line business expanded. One AIG subsidiary, Lexington Insurance Company, became one of the country's largest surplus-line carriers.
The shift illustrates how insurers can continue serving high-risk homeowners while moving some coverage into a less-regulated part of the insurance market.
Florida and Other States Are Following the Trend
California is not alone.
Florida has experienced rapid growth in surplus homeowners insurance as insurers confront hurricanes, coastal exposure and rising catastrophe losses.
The Washington Post analysis found that Florida's homeowners surplus premiums increased 74 percent between 2020 and 2025, reaching approximately $888 million.
Texas and South Carolina are also among the states experiencing significant growth.
The pattern is increasingly national: as extreme-weather risks become more expensive, traditional insurance becomes harder to obtain, and homeowners move toward alternative markets.
Why Regulators Are Paying Attention
Insurance regulators face a difficult balancing act.
If regulations are too restrictive, insurers may decide that they cannot profitably operate in high-risk areas. That can lead to fewer insurance choices and more homeowners being pushed into government-backed last-resort programs.
If regulation is too weak, consumers could face policies that provide inadequate protection or make it harder to recover after a disaster.
State officials therefore have an interest in keeping surplus insurance available without allowing it to become the dominant replacement for conventional coverage.
Experts cited by The Post described surplus insurance as useful when it fills gaps in the standard market, but warned that it should function as a safety valve rather than become the normal way homeowners insure their properties.
The Bigger Problem Is the Cost of Climate Risk
The rapid growth of surplus insurance ultimately points to a much larger problem.
Insurance companies are designed to spread risk across large groups of policyholders. But when disasters become more frequent or more expensive in particular regions, that model becomes increasingly difficult to maintain.
The result can be a cycle in which insurers withdraw from risky areas, homeowners search for alternatives, government-backed programs take on more exposure and specialized insurers fill the remaining gaps.
Earlier Washington Post reporting documented how major insurers have reduced or excluded natural-disaster coverage as climate risks have grown.
That means the insurance crisis is not simply about rising premiums.
It is increasingly about whether homeowners can obtain meaningful coverage at all.
Homeowners Face a Difficult Choice
For homeowners in disaster-prone communities, surplus insurance can provide something extremely important: a policy when the conventional market offers nothing.
But having a policy is not the same as having comprehensive protection.
Homeowners considering surplus coverage may need to pay close attention to exclusions, deductibles, replacement-cost provisions, wildfire or hurricane coverage, claim procedures and dispute-resolution clauses.
The cheapest policy may not provide enough protection to rebuild after a catastrophe.
As extreme weather continues to reshape the U.S. insurance market, more Americans may find themselves making an uncomfortable choice between expensive conventional coverage, specialized surplus insurance, state-backed last-resort plans — or no insurance at all.
The boom in surplus insurance is therefore less a sign of a healthy insurance market than a warning about how quickly traditional coverage is disappearing from America's most climate-exposed communities.
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