The Rapid Growth of California's Excess and Surplus Market
In a recent story, the Wall Street Journal reported on the case of entertainment billionaire Alki David, who, a California jury said in June, should pay $900 million to a former employee for sexual battery.
This is only one of dozens of “nuclear verdicts” for insurers – verdicts representing jury awards of more than $10 million. Marathon Strategies, a PR firm that produces an annual report on the matter, found that in 2023 the total of nuclear verdicts was up 27%, with the median award rising to $44 million from $41 million the year before, a 7.3% increase. And the trend is unlikely to end here.
It’s no coincidence that the Golden State – where insurers also struggle with the impact of climate change from large wildfires – looks like ground zero, with several carriers running for the doors. Naturally, agents and insureds in California are turning to the Excess & Surplus market to find coverage, often at 2-3x the cost of Admitted coverage.
Today, Pythia Insurance shows how California’s Excess & Surplus (E&S) market “explosion” translates in practice. E&S now accounts for over 20% of the overall premiums written in the state. Independent agents wrote over $12 billion of E&S Property and Casualty premiums last year, a 15% compound annual growth rate (CAGR) since 2020.
Areas most impacted
Three lines, in particular, highlight the dramatic increase in E&S:
- Homeowners Insurance – one in 10 homeowners now turn to E&S to protect their house, a much higher rate than the national average of 1.5% of homeowners;
- Commercial property – E&S is now over half of the total business;
- ‘Claims Made’ Liability Business – also, over 50% of premiums in the line are written in the E&S market. In some niches, E&S constitutes 75% or more of the market.
Still, the pressure on the margins of the admitted book of business is more than evident. For independent agents in California, commercial lines in Admitted markets saw an increase in combined ratio 89% in 2020 to 104% in 2023. This means 4 cents of loss for every $1 of premium written for insurers. For Package business, combined ratio ballooned to 150+% in 2023.
Looking at the Future
The gradual transfer of business from Admitted to the E&S market, however, is not uniform across all carriers. While some insurers may be rapidly reducing or eliminating their admitted books, others continue to expand their admitted presence. For example, five carriers have doubled down on niches within Commercial Property and have seen both stable combined ratio at levels lower than 70% and growth in written premiums of 15+% annually, Pythia Insurance data shows.
Looking ahead to 2025 and 2026, capacity will remain constrained, but certain carriers will emerge as industry leaders. Independent agents who partner with these profitable, growing insurers will secure coverage for their clients, while others may increasingly rely on E&S markets. Choosing the right carrier partnerships will be crucial for success. Pythia Insurance can help you identify the right partners.