The shift from admitted to excess and surplus (E&S) insurance markets reflects a growing trend driven by the retreat of traditional insurers from high-risk or specialized coverage areas, particularly in states like California, Florida, and Louisiana. Admitted carriers, regulated by state insurance departments and backed by state guaranty funds, are increasingly withdrawing from markets like homeowners’ insurance due to rising natural catastrophe risks (e.g., wildfires, floods, hurricanes) and financial pressures like loss cost inflation and large court verdicts. This has led to a surge in E&S market growth, with premiums reaching $81 billion in 2024 and projected to hit $125.9 billion by 2027 at a 15.2% CAGR.
E&S insurers, as non-admitted carriers, operate with fewer regulatory constraints, allowing them to cover high-risk or nonstandard risks—such as properties in disaster-prone areas, businesses with unique exposures, or emerging industries like the gig economy—that admitted carriers avoid. For example, in California, E&S insurers have filled the gap left by major carriers like Farmers, Allstate, and State Farm, with a 330% increase in homeowners’ policy transactions and a 169% jump in premiums through Q3 2024.
Key drivers of this shift include:
- Retreat of Admitted Carriers: Traditional insurers are canceling policies or ceasing new business in high-risk regions due to unprofitable loss ratios and regulatory restrictions on rates and forms.
- Increased Risk Exposure: Rising frequency and severity of natural catastrophes, coupled with emerging risks like cyber threats, push demand for E&S’s flexible, innovative coverage solutions.
- Regulatory Flexibility: E&S insurers can tailor policies and premiums without adhering to strict state regulations, making them ideal for complex or high-capacity risks.
- Market Growth: The E&S market has seen double-digit growth for five years, driven by lines like liability, fire, earthquake, flood, and ocean marine, with premiums surpassing $100 billion in 2023.
However, E&S policies carry higher premiums, state taxes, and lack state guaranty fund protection, posing risks if insurers become insolvent. Despite these challenges, the E&S market’s ability to innovate and address coverage gaps makes it a critical “safety valve” for businesses and individuals unable to secure standard insurance, with continued growth expected as admitted markets tighten.
This shift, while filling critical gaps, raises concerns about affordability and stability for policyholders, particularly as E&S becomes a primary option for standard risks like homeowners’ coverage in volatile regions.