Californians Turn to Unregulated Insurers as Traditional Carriers Abandon State

Unregulated insurance companies are surging in popularity as homeowners in California see fewer regulated options.

State Farm and other traditional insurers recently made headlines for dropping coverage or raising rates across the state.

As insurers abandon the state or charge higher premiums, many homeowners are turning to the unregulated marketplace.

Traditional Insurers Continue to Leave California or Raise Rates

Traditional insurance companies are leaving California – or raising rates – in record numbers.

The Los Angeles Times recently reported on the “California exodus of home insurance companies,” for example, showing some of the state’s largest insurers – State Farm, Farmers, and Allstate – have all reduced the issuance of new policies.

Meanwhile, the Public Policy Institute of California reports that 100,000 homeowners in the state lost coverage in the last five years because insurers canceled or failed to renew policies.

Insurers also continue to raise rates. State Farm recently asked California’s Department of Insurance for permission to raise rates 22% after the Los Angeles County fires, for example. The Department of Insurance also approved rate hikes for Mercury General (+12%) and Safeco (+7.2%).

All of these factors are making regulated, traditional insurance increasingly difficult to find in California.

Unregulated vs. Regulated Insurers

It’s becoming harder to find affordable insurance in California – and that’s pushing homeowners to the unregulated marketplace.

What’s the difference between the regulated and unregulated marketplace?

All legal insurers in the United States are “regulated” in some way. They must abide by certain municipal, state, and federal laws.

Like all states, California has a Department of Insurance. That Department of Insurance sets industry regulations. It also creates a safety net: if your insurance company goes bankrupt after a major event, you don’t lose coverage simply because you picked the wrong insurer.

However, some insurers are “admitted” insurers while others are “non-admitted,” and there’s a big difference in how they operate.

Admitted, Traditional, Licensed, & Regulated Insurers

Most insurers are admitted insurers. They’re traditional, licensed, and regulated. They’re well-known names like State Farm and Progressive.

Admitted and licensed insurers are required to:

• File their rates with the Department of Insurance
• Participate in the California Insurance Guarantee Association (CIGA)

Because of these two requirements, admitted insurers provide an additional safety net. If State Farm goes bankrupt, for example, homeowners in California insured by State Farm don’t lose everything; instead, the state covers the loss (often by charging the balance to other insurers and policyholders in the state).

Non-Admitted, Non-Traditional, Surplus Line Insurers

In contrast, some insurers are non-admitted insurers. Also known as surplus line insurers, these insurers don’t file their rates with the Department of Insurance, nor do they participate in CIGA.

Non-admitted, surplus line insurers:

• Do not file their rates with the Department of Insurance
• Do not participate in the California Insurance Guarantee Association (CIGA)

Surplus line insurers were traditionally used for high-risk properties – say, properties that ordinary insurers were unable to insure because of the excess risk. A property on the edge of a forest that has burned to the ground five times in the last 20 years, for example, may not qualify for coverage with insurers.

Surplus Line Insurers Observe 2,500% Increase in California

As Kiplinger reports, the rise in surplus lines coverage is easy to see in the numbers.

Citing the Surplus Line Association of California’s report from February 2025, surplus line coverage has surged statewide in the last few years:

• In Bakersfield, surplus line insurers experienced a 2,500% increase from 2023 to 2024
• In San Jose, they observed a 1,500% increase over the same period

The report found fire-prone regions were a top focus area, helping homeowners find alternative coverages in areas where traditional insurers no longer offer coverage.

The Surplus Line Association of California expects this trend to continue into 2025 as traditional insurers raise rates or leave the market.

What’s the Catch with Surplus Lines Coverage?

Surplus lines carriers fill a hole in the marketplace: they provide a valid insurance alternative for homeowners who can’t find coverage through the traditional marketplace.

The catch, of course, is that they operate under fewer regulations.

Some of the drawbacks of surplus lines carriers include:

• They’re more expensive. Surplus line carriers operate in a higher-risk marketplace. Their pricing reflects that. Surplus line carriers may be the only option available in certain areas. Or, they may offer pricing slightly cheaper than the continuously rising rates charged by traditional carriers.
• They may deny claims at a higher-than-usual rate. Kiplinger cites various reports showing that these insurers, faced with lower regulations, may have an easier time denying policyholder claims.
• No safety net from CIGA. Surplus line carriers in California do not participate in California’s Insurance Guarantee Association (CIGA). If your surplus line carrier goes bankrupt, there’s no safety net. You might be left with a massive loss simply because you chose the wrong insurer.

Of course, these drawbacks have little impact if you can’t find other insurance providers.

How to Find Home Insurance in California

You may not need to resort to the unregulated marketplace to find insurance – even if you live in a high-risk area:

1. Use the Department of Insurance’s Home Insurance Finder database to find local insurers, agents, and brokers.
2. If you can’t find traditional insurance in your area, check California’s FAIR Plan, which is the insurer of last resort for high-risk properties in California.
3. Take preventative measures to protect your home from local risks. In many cases, repairing a roof, creating a fire break, or trimming back trees can be the difference between qualifying for insurance or facing denial.

As insurance becomes harder to find in California, homeowners may need to pay more or take on extra risk to find the coverage they need.