Last spring, Alex Hwang and his wife traded their small San Francisco Bay Area house for a larger home with a big backyard in Pulte’s Cimarron Ridge development in the Inland Empire, where affordable housing communities are expanding. While purchasing their new $700,000 house in June, they encountered an unexpected problem. Pulte typically offers an insurance policy as part of the sale, and Hwang’s real estate agent assured them that obtaining coverage had never been an issue. Yet, as the closing date approached, the builder informed Hwang that a comprehensive home policy couldn’t be found in the standard, regulated insurance market. The option available lacked the fire coverage required by most lenders.
Hwang faced two choices: buy partial protection through the FAIR Plan, offering only fire coverage, and purchase an additional policy for everything else, or explore the surplus lines market consisting of out-of-state carriers known for more flexible, high-risk insurance without price controls. Unaware of this secondary market, Hwang opted for a surplus line carrier policy, which had a major condition. It required him to cover $25,000 in losses out-of-pocket if a fire occurred, five times the standard deductible. “I hate the $25,000, but I didn’t really have a whole lot of choice,” Hwang stated. “None of the big-name insurance companies were writing.”
FAIR Plan and Insurance Deserts
Hwang’s situation isn’t unique, as property insurance availability is shrinking across California. The FAIR Plan is emerging as the primary provider in high-risk areas and expanding rapidly in low to moderate fire-risk locations like the Inland Empire. Analysis shows that in 396 ZIP Codes between March 2025 and June 2026, 9 out of 10 policies added to the FAIR Plan were low-risk according to state insurance data. These 11,000 homes are in addition to the 138,000 low-risk properties already covered by this last-resort insurer. Traditionally low-risk areas, including expanding suburban developments, are seeing ballooning reliance on the FAIR Plan.
The proliferation of housing developments along the Interstate 215 corridor is straining traditional insurance markets. With FAIR Plan policy counts jumping by as much as 500% in the last year, major insurers are abandoning low-risk properties, challenging homeowners already burdened by California’s high costs of living.
Challenges in the Insurance Market
Homeowners face a tough decision between the limited protection of the FAIR Plan or risking unregulated insurance solutions. Since these surplus policies are outside regular market oversight, the state’s insurance department cannot regulate their rates or follow up on consumer complaints. Should a surplus lines carrier go bankrupt, policyholders lack state protection.
Surplus lines insurance now occupies 7% of the California home insurance market, growing from 1% in 2021. An example is Summit Specialty, a Nebraska startup, backing Hwang’s policy. While it carries an A rating from AM Best, it also has a negative outlook. If it fails, Hwang receives no coverage from California’s guarantee fund for regulated carriers.
As California’s insurance market contracts, regulated carriers have stopped or halted issuing new policies due to inflation in rebuilding costs and other expenses. The market distress peaked when State Farm and Farmers announced plans to drop numerous policies. Despite Insurance Commissioner Ricardo Lara suggesting stabilization, conventional insurance is still hard to find in many areas.
Near Menifee, where Hwang resides, FAIR Plan policies increased fivefold from 2024 to this June. In Hemet, across the valley, plan enrollments grew by 660%, with more than 1,100 new policies from a single ZIP Code. Here, the vegetation consists of sagebrush rather than dense forests.
The Growth of Unregulated Markets
The scarcity of conventional policies is boosting unregulated insurance sales. Annual reports highlight a significant rise in California premiums collected by surplus lines companies. For instance, Allstate halted new business through its regulated carrier but doubled its business via North Light Specialty. These companies are seeking permission to assume policies from the FAIR Plan.
Opinions within the state legislature vary. In March, Deputy Commissioner Josephine Figueroa suggested facilitating surplus lines business from FAIR Plan clients. A few months later, Lara’s spokesman emphasized expanding access to comprehensive coverage over limited, cost-saving options.
Industry experts note that without this surplus line option, home construction could stagnate. According to Gilbert Ayon, an Inland Empire broker, these specialty companies are invaluable to homeowners.
Louis, a Riverside County resident, faced similar challenges purchasing a $700,000 home in Promontory. Unable to obtain coverage through regulated carriers, he turned to surplus policies with high deductibles. “Can you afford a home? Great. Can you afford the insurance?” he questioned.
Decline of Traditional Policies
State data reveal a sharp decline in traditional insurance policies, missing out on 462,000 policies since peaking in 2016. Riverside insurance broker Bob Severns finds and secures policies in this fragmented market despite affordability challenges. “Insurance used to be the last thing to worry about when buying a house, but now it’s the first,” he explained. The critical challenge remains finding policies within buyers’ budgets.