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It’s been more than two years since I wrote an analysis based on Surplus Line Association of California insight and data for an ¾ÅÉ« article forecasting that the state’s homeowners insurance market was entering a structural transition driven primarily by population decline, inflation and admitted‑carrier exits.

At the time, new excess and surplus policy count was only beginning to rebound after several years of contraction, and the data suggested that broad socioeconomic forces—rather than catastrophe trends—were setting the stage for change.

Related: ‘Structural Shift’ Occurring in California Surplus Lines

In a March 2025 ¾ÅÉ« analysis, I used SLACAL data to document how the characteristics of newly written surplus lines homes had shifted dramatically. Lower‑value, lower‑risk, traditionally admitted‑market homes were entering surplus lines in large numbers. Replacement costs, assessed values, square footage and burn probability all fell sharply, with premiums following the same downward trajectory. These changes painted a clear picture: The surge was being driven not by heightened risk, but by displacement.

Today, with another full year of data, the trend has advanced into a new—and even more unexpected—phase. As shown in Figure 1, total surplus lines homeowners insurance policies did not merely continue rising—they spiked past 300,000 in 2025, a level without precedent. What had been a rebound in 2023, and a structural shift in 2024, has now become a full‑scale realignment of where California homeowners obtain coverage.

Wildfire Risk Still Falling, Even as E&S Homeowners Count Climbs

My earlier 2025 analysis used burn probability as the primary hazard metric. Here, I use wildfire metrics from the U.S. Department of Agriculture Forest Service’s dataset, including risk to homes and exposure type.

Risk to homes combines the likelihood of wildfire, modeled fire intensity and potential structure damage, providing a more property-specific view of hazard. When SLACAL first reported the decline in wildfire hazard in 2025, it appeared to be a temporary artifact of admitted‑market stress. Instead, the trend has strengthened. As shown in Figure 2, portfolio‑wide risk to homes has now fallen to its lowest level, continuing a multi-year decline even as E&S volume surged past 300,000 policies. This pattern persisted despite California’s severe 2025 wildfire season and the resulting strain on insurer capital. While admitted carriers understandably restricted new business, the homes entering E&S in 2024 to 2025 showed lower, not higher, underlying wildfire hazard.

The message is clear: The surge in surplus lines activity is not being driven by worsening hazard, but by coverage scarcity, echoing the structural forces highlighted in the introduction.

A Surprising Pivot: E&S Has Become Urban

Perhaps the most striking development is where the new surplus lines business is coming from. Historically, E&S homeowners’ insurance has been associated with higher‑risk rural or Wildland-Urban Interface (WUI)‑adjacent properties—homes situated near wildland fuels, at the edge of the built environment, or in places where ember exposure from nearby vegetation was a meaningful driver of wildfire loss potential. But the newest year of data overturns that assumption entirely.

As shown in Figure 3, urban homes—classified using from the U.S. Department of Agriculture Economic Research Service—represented roughly 80% of all E&S placements in 2023, increased to nearly 89% in 2024, and reached about 90% in 2025, while suburban and rural shares contracted into the low single digits. E&S carriers are no longer primarily insuring fringe geographies or fuel‑adjacent homes—they are increasingly writing standard metropolitan properties, the very homes that historically defined the admitted market.

This shift is visible not just in shares but in concentration across California’s major cities. In 2025, Los Angeles (5.8%) and San Diego (5.3%) together accounted for roughly one-in-nine E&S homeowners’ placements statewide, with San Francisco (2.1%), Sacramento (1.7%), and San Jose (1.7%) rounding out the top five—16.6% collectively (nearly 50,000 policies). These concentrations underscore that the surge is centered in major metropolitan areas, not in rural or WUI‑adjacent communities.

This shift is independently reinforced by the trend in exposure type, shown in Figure 4. In this analysis, exposure type represents the modeled degree to which a location is exposed to nearby wildland fuels, with values ranging from 1 (direct exposure within burnable vegetation) to 0 (little to no modeled exposure). Portfolio‑wide exposure type has declined sharply, falling from 0.44 in 2020 to 0.34 in 2023, and then to 0.20 by 2025. This indicates that the properties entering E&S are becoming less connected to wildland fuels.

The convergence of these two patterns—a rising urban share (Figure 3) and falling exposure type (Figure 4)—provides compelling evidence that the expansion of E&S homeowners insurance is not driven by greater hazard or increased WUI proximity. Instead, it reflects a structural market transition shaped by coverage scarcity in the admitted market, not catastrophe‑driven displacement. Surplus lines carriers are no longer absorbing only the outliers—the custom homes, the highly exposed risks or the hard‑to‑place rural properties. They are increasingly insuring ordinary urban homes whose risk characteristics look fundamentally similar to those long associated with the admitted market.

Put simply, the E&S market has not become riskier. It has become more urban and less exposed—a transformation driven by access constraints rather than hazard escalation.

A Story of Transformation

Across our 2024, 2025, and now 2026 analyses, a coherent narrative has emerged:

2024: Macro Forces Begin the Shift

Population decline, inflation and admitted‑carrier exits trigger the first major rebound in E&S new business.

2025: Admitted‑Market Risks Flood into E&S

Replacement costs, assessed values, square footage and wildfire hazard all fall sharply as homes traditionally written in the admitted market shift into surplus lines.

2026: The Shift Deepens and Expands

Wildfire risk to homes reaches historic lows among E&S placements, and both the rise in urban participation and the sharp decline in exposure type show that the market is no longer defined by hazard or WUI adjacency—it is defined by access constraints. By 2025, nearly nine-in-10 E&S homes were in urban settings, and exposure type fell to its lowest level, confirming that the surge reflects where consumers lack admitted‑market options.

Put differently: E&S has gone from niche → spillover → parallel market.

What This Means for the Future

As surplus lines carriers increasingly insure homes that pose no greater hazard than the median admitted‑market risk—and in many cases are both urban and low in exposure type (Figures 3 and 4)—several important implications emerge:

• The boundary between admitted and surplus lines is now blurred. For many homeowners, E&S now functions less as a safety valve and more as the practical alternative when admitted‑market options narrow.
• Market stability now depends on regulatory modernization. Admitted carriers’ ability to return at scale will hinge on rating frameworks that more effectively align price with evolving costs and underlying risk.
• Surplus lines carriers face new portfolio dynamics. An influx of lower‑risk, lower‑value and increasingly urban homes reshapes underwriting assumptions, pricing expectations and long‑term capital needs.
• Consumers are bearing the cost of capacity shortages. Coverage challenges increasingly reflect market structure and regulatory constraints.

Importantly, there are early signs of a potential pivot. In late 2025, Farmers Insurance removed its cap on new homeowners insurance policies and filed a sustainable insurance strategy–aligned rating plan while preparing direct outreach to hundreds of thousands of consumers in distressed areas. Whether this marks the beginning of broader admitted‑market re‑entry—or simply a temporary easing of pressure—remains to be seen.

E&S Is No Longer an Exception—It’s Becoming the Default

From the socioeconomic pressures of 2024, to the risk‑profile inversion of 2025, to the sharp declines in wildfire hazard and the urban surge of 2026, California’s homeowners’ insurance market has undergone a structural realignment. The data now show that the E&S market is no longer simply responding to high‑risk or hard‑to‑place properties. It is responding to a systemic shortage of admitted‑market capacity—absorbing homeowners who historically would never have entered surplus lines.

Crucially, this transition is reinforced on every dimension of wildfire‑related risk. Risk to homes is falling to record lows (Figure 2), exposure type continues to decline (Figure 4) and the E&S book has become overwhelmingly urban (Figure 3). These trends all point in the same direction: The homes entering surplus lines are becoming less hazard‑exposed and more metropolitan.

This is a market access story, and it may be the defining insurance challenge for California in the years ahead. The predominance of urban placements—combined with historically low exposure type—underscores that the market is absorbing mainstream homes rather than hazard‑exposed fringe properties. E&S is no longer an exception. It is becoming the default.

Gorshunov, Ph.D., is a data scientist at The Surplus Line Association of California.

Top photo: Crews sift through bunt structure following the 2025 Eaton Fire. Photo by CalFire.

Topics Catastrophe California Natural Disasters Wildfire Excess Surplus