Risk is becoming more dynamic, and climate change is only one driver. (Credit: Andrii Yalanskyi/Adobe Stock)
The devastating wildfires that swept through California this year, as well as other natural disaster risks, geopolitical risks and cyber risks, illustrate both the necessity of the Excess and Surplus (E&S) and specialty markets and the opportunity they represent.
As primarily admitted carriers continue to retreat from disaster-prone areas in the U.S., citing rising loss ratios and regulatory constraints, E&S insurers have stepped in to fill the gap. These non-admitted carriers operate outside each state’s admitted rate and form approval process, giving them the flexibility to underwrite high-risk properties with customized terms and pricing. While premiums are typically higher, this segment provides a critical safety net for homeowners and businesses who would otherwise be left uninsured.
Battling destabilization
January’s devastating wildfires in California weren’t an isolated event. They are part of a broader shift reshaping the E&S insurance landscape.
Risk is becoming more dynamic, and climate change is only one driver. Cyberthreats are evolving rapidly, with ransomware, zero-day exploits, and third-party supply chain attacks pushing beyond the comfort zone of standard carriers. Many avoid writing cyber policies for high-exposure firms or offer only tightly limited coverage. At the same time, emerging sectors such as cannabis, cryptocurrency, psilocybin therapy, AI tools, drone logistics, and eVTOL aircraft, are operating in legally ambiguous, untested terrain. Most remain unrated or uninsurable by traditional standards, leaving E&S carriers as the primary option for coverage.
As risk becomes more volatile, governments are tightening regulations, which ironically makes it harder for admitted carriers to respond. This dynamic creates a natural opening for E&S insurers, which aren’t bound by those constraints.
In California, political pressure and regulatory inertia have pushed admitted carriers to the brink, culminating in a $1 billion assessment to keep the state’s FAIR Plan solvent after wildfire losses.
We previously wrote an article about how to address the systemic issues facing the admitted market, putting the onus of change on state and local regulators, carriers and policyholders alike. There is no single panacea; action must be taken across multiple stakeholders.
In Colorado, lawmakers — unable to hold utilities liable after the costly December 2021 Marshall Fire — tried proposing a 0.5% fee on all homeowners’ policies to fund a public reinsurance program.While this failed, it shows that lawmakers are recognizing growing risk and taking some steps to address it.
But they often only take half-measures, and many of these proposals are reactive rather than proactive.
Why Lloyd’s still leads…
Zooming further out, the appeal of the E&S and specialty markets isn’t just a response to uniquely American pressures such as the country’s extreme climate diversity or the fact that insurance is regulated differently in all 50 states. Rather, it’s part of a broader global trend, with international syndicates like Lloyd’s of London maintaining and growing relevance for their ability to underwrite risks that domestic or less sophisticated carriers often avoid.
Lloyd’s isn’t new to this terrain. They have been writing specialty coverage for centuries, having evolved from writing very specialized risks (think insuring a baseball pitcher’s arm) to highly complex risks that align more with those we’re seeing in California and elsewhere. As emerging risks grow more complex, Lloyd’s remains the benchmark for bespoke underwriting at scale.
Lloyd’s and other global specialty carriers were quick to adapt by leveraging available capacity. This year’s Marks & Spencer (UK) cyberattack, which caused the retailer to pause online orders for weeks, underscored the severity of ransomware, supply chain breaches and AI-enabled fraud, while the fallout from the Ukraine war heightened geopolitical risk across Europe. Rather than retreat, specialty insures tailored their models to absorb volatility, positioning themselves ahead of the curve as traditional markets pulled back.
E&S expansion demands
Admitted carriers that have exhausted other risk pools are increasingly exploring non-admitted markets as an avenue for growth, but many face real friction as they expand into non-admitted territory, especially in product development, operations and talent.
In product development, the freedom to depart from filed rates and forms is a double-edged sword: It enables creativity in underwriting complex risks but also demands a more sophisticated product organization, one that can identify market inefficiencies, rapidly build new structures, and iterate quickly as conditions change.
Operationally, non-admitted markets introduce friction in areas like licensing and form management, along with more complex producer oversight that, if mishandled, can bog down the underwriting process. Additionally, portfolio management complexity increases significantly, as each policy potentially has different terms and conditions, making aggregation and concentration management more operationally complex.
Perhaps the greatest challenge lies in talent. Non-admitted underwriting calls for a higher degree of judgment and experience, especially when structuring bespoke policies. Yet, the industry is already short on senior underwriters. Scaling requires more than just hiring; it means retraining admitted-market veterans, cross-pollinating teams, and cultivating underwriters who can think creatively without relying on the guardrails of structured templates.
Distribution adds another challenging layer to the E&S market: Brokers who operate in the non-admitted space are often more specialized and expect carriers to show up with that same depth of expertise. Many large non-admitted accounts may want very specialized risk-sharing structures across multiple locations or underlying insured asset types, adding yet another layer of complexity that savvy brokers will exploit if possible.
Building E&S capability
Sustainable growth in the E&S market doesn’t begin with intake systems or compliance workflows. It begins with a shift in culture.
Carriers that have successfully moved into the non-admitted space start by building agility into their product development, actuarial and field underwriting teams. E&S demands speed, innovation and a willingness to rethink long-held assumptions about forms and rating strategies, often in partnership with trusted brokers who can co-develop creative solutions. AI can play a role, too. Once that mindset takes root, it can extend into portfolio management and distribution, supported by flexible guardrails that encourage experimentation without losing control.
The most effective carriers start small, testing their E&S frameworks with a select group of brokers. Only when underwriting, product and actuarial functions have matured, do they widen the submission funnel, scaling distribution in lockstep with internal readiness.
The next admitted-market retreat
The most forward-looking carriers aren’t just reacting to disruption in the admitted market. They’re watching for stress signals before the cracks appear. Rising reinsurance costs, shifting loss severity, and regulatory inertia are all early indicators. When capital requirements spike and regulators fail to adapt, carriers recognize the pattern: The economics of staying in the admitted market begin to erode.
Wildfire risk is a case in point. The retreat from California’s admitted market in the early 2020s wasn’t spontaneous. It followed years of worsening loss trends, climbing reinsurance costs, and improved modeling capabilities that gave carriers clearer visibility into exposure. Those same conditions, i.e. intensifying peril, rising capital pressure, and patchwork regulation — are now emerging in other states, particularly in the Pacific Northwest. For insurers that have lived through the California playbook, the priority now is to stay ahead of the next retreat, shifting vulnerable portfolios into E&S before the market forces their hand.
John Rodgers is managing partner; and Rajeev Aggarwal and Brian Nordyke are managing directors at SSA & Company, a global management-consulting firm. They can be reached respectively by sending an e-mail to jrodgers@ssaandco.com, raggarwal@ssaandco.com, and bnordyke@ssaandco.com.
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