Why more homeowners across the U.S. are turning to an insurance that offers less coverage

A last-resort insurance policy with fewer homeowner protections and less government oversight is booming, a Washington Post analysis finds, as traditional insurers continue to back away from areas of the country most vulnerable to extreme weather.

The policies are growing fastest in California, Florida, Texas, and South Carolina because increasingly intensifying weather and massive disasters are putting more insurers on the hook for substantial claim payouts. Last year in California, insurance companies paid out $23 billion in homeowners claims, according to industry data.

The amount of premiums written under what is known as “surplus” or “excess” insurance lines has nearly tripled nationwide in the past five years, from about $1.5 billion in 2021 to $4.1 billion in 2025, according to data from the National Association of Insurance Commissioners (NAIC) — which insurers submit to the organization — and analyzed by the independent firm Weiss Ratings and provided to the Post. The Post reviewed the data and the Weiss analysis.

While this represents only a small share of the total $187 billion in premiums written in the United States each year, according to the Weiss data, industry experts say they reflect a problem where Americans living in the most weather-exposed places are becoming harder to insure.

In 2025, the Treasury Department’s Federal Insurance Office released a report showing how, due to climate-related events, millions of Americans were finding it harder to obtain insurance and had to pay more for it.

And as more insurers pull back or limit coverage, more Americans have struggled to find it and have sought out surplus line plans. Independent brokers often steer homeowners to surplus policies when they cannot obtain a traditional plan, though carriers also advertise directly to consumers.

These once-niche policies, which date to the late 1800s, historically covered commercial, high-risk, or unusual properties.

They can sometimes be more expensive and often have more limitations and restrictive clauses, including arbitration clauses stating that homeowners cannot select their own contractors or price adjusters.

Experts said they have fewer consumer protections, prompting some advocates and state regulators to warn that homeowners may get lower payouts in the event of a disaster.

California’s surplus line industry is expanding more than almost any other state, according to the Post and Weiss analysis of NAIC data, which only includes insurers based in the U.S. Since 2021, the amount of surplus premiums written in California increased tenfold from $135 million to nearly $1.3 billion, now accounting for 7% of all homeowners premiums in the state compared with just 1% five years ago.

California’s insurance crisis has been spreading beyond wildfire-prone regions, according to new Stanford University research, which found that the number of residents having to get coverage from the state’s backup insurance option, the Fair Plan, has tripled since 2020.

A Post review of domestically based surplus line carriers across the U.S. found that 10 companies account for slightly more than half of all premiums, most of which are owned by major insurance companies.

Major insurance providers, such as Lloyd’s of London and Berkshire Hathaway, dominate the industry, but smaller companies have also been proliferating.

Some industry experts say these policies fill a void created by carriers pulling out or limiting coverage, and that without them, markets would be in greater distress. These companies are exempt from certain rules, allowing them to change what their plans cover and how much they charge faster than standard carriers.

“The industry is built on two things: freedom of rate and form,” said Benjamin McKay, CEO of the Surplus Line Association of California, a nonprofit organization that advises the California Department of Insurance on law and policy. “You can charge what you want to charge and then have the contract say whatever it needs to say. You can exclude and include whatever.”

The push-pull with surplus lines, McKay explained, is that while they are needed, they are a “reactive function of what’s happening in the admitted market.”

McKay said the “proper role” for these less-conventional homeowners plans is “as a safety valve, not becoming the default option. Bottom line: We just need a healthy market.”

State officials also have less insight into surplus carriers’ financial conditions, because they are not subject to the same financial requirements and tests that states such as California impose on admitted carriers.

However, surplus lines still have to follow California laws, said Michael Soller, deputy commissioner of the California Department of Insurance’s communications and public relations branch.

The Post recently found that some major surplus line companies such as AIG had been including separate “wildfire deductibles” in their policies, which Soller said violated state consumer codes and warranted a review.

AIG — which has three subsidiaries offering surplus line policies to high-net-worth properties, all of which are operating in California — stopped offering its standard, regulated insurance for high-end properties in the state due to what the company said in a statement was “part of AIG’s multi-year transformation to streamline its portfolio.” In 2021, nearly 8,000 wildfires burned nearly 2.6 million acres of land across California.

Over the years, according to California insurance officials, AIG asked for rate increases that were substantially lower than what their own data reflected was necessary for its exposure to risk. In 2020, after the state approved two subsequent raises, AIG asked to bump rates by nearly 42% before withdrawing that request.

One of its subsidiaries, Lexington Insurance Co., is the seventh-largest surplus line carrier nationally, a Post review of data shows. AIG said its plans for “high-net-worth homeowners’ insurance” are primarily issued through that company.

From 2020 to 2025, AIG’s standard homeowners business plummeted to zero in California, according to data obtained by Weiss Ratings and reviewed by the Post. Meanwhile, its surplus line business grew from $24 million to $119 million, data shows. The carrier announced in January 2022 that it was pulling back coverage but would still offer surplus line insurance to high-net-worth, specialty clients.

“AIG has switched its entire California homeowners business to surplus line insurance,” said Martin Weiss, founder of Weiss Ratings.

Over that six-year period, the insurance company’s surplus line premiums grew by 394% in California.

“AIG has participated in California’s surplus lines market for more than 60 years, providing coverage for specialized risks that generally cannot be placed in the admitted market,” the company said. It added that while its surplus line business for high-net-worth homeowners has grown along with the rest of the market, “it represents less than one percent of total California homeowners insurance premiums.”

Isaac Park, who runs the Los Angeles-based Excel Adjusters with his father, said he has seen an increased number of clients over the past decade shifting to the state-backed Fair Plan, who are then forced to get a second policy for risks such as water damage. Park added that he has also seen more surplus line firms operating in the state.

“They have more limitations of coverage,” he said.

Some consumer advocates worry that since surplus line carriers don’t participate in state guarantor funds, which help support policyholders if their insurer goes insolvent, people are at greater risk of bad-faith behavior or not getting paid out on their claims.

Companies are paying out less to homeowners with surplus line policies compared with traditional ones, according to the NAIC data provided to the Post. In the past five years, surplus insurance lines paid out an average of 36 cents in claims for every dollar in premiums they collected, compared with 58 cents for admitted carriers. In 2024, carriers paid out 15 cents on each dollar of premiums they collected from surplus line policyholders.

Payouts from surplus line insurers spiked in 2025 because of the L.A. fires, according to experts.

“They are the perfect loophole for an insurer who wants to evade regulation,” said Amy Bach, executive director of United Policyholders.

Bach described surplus lines’ ability to avoid regulation as a “powder keg” for the industry. But she added, “They are also doing a good thing by providing protection that other insurers are not willing to provide.”

A new report from Climate Cabinet Education, a nonprofit advocacy group, charts how this explosive growth happened. Most states, for example, require insurance agents and brokers to demonstrate that they made a “diligent effort” to place policyholders within the admitted market. In California, three carriers have to deny a resident before they can seek out a surplus line plan. But last year, Florida — where surplus lines in the homeowners market grew 74% between 2020 and 2025 to $888 million, according to the NAIC data — became the fifth state to scrap that requirement.

Jayson O’Neill, spokesperson for the insurance reform advocacy group Unlocking America’s Future, said that several consumer advocacy groups are working with lawmakers in Texas and North Carolina on stronger regulations that could include barring insurers from removing some protections from basic coverage.

Park, the public adjuster who helps represent Californians in battles with their carriers over claims, said that even before last year’s fires in L.A., he was seeing “a lot of insurance companies dropping my clients after just one claim.” Now the landscape seems even more dire.

Ben Taggart lives in Oakland Hills, Calif., near the site of a massive fire in 1991 and a community identified as a high-risk zone for wildfires. He found his current surplus line insurer two years ago, which aggregator sites identified as the only other option aside from the state-backed Fair Plan.

Taggart said in an email that he wished he could get a policy through an insurer admitted into the California market, and that he is reluctant to file any claims given that his deductible is $10,000 and he worries the company would drop him if he made a claim.

“The only people I know on our block who are still with admitted insurers are boomers who have been in their house a really long time,” he said. “Everyone who moved here recently is on surplus or Fair.”