California is a prime example. The state faces an increasingly severe wildfire threat, and the government has implemented regulations like the "103 Proposal" to restrict the rate at which insurance companies can raise prices, intending to protect consumer interests.

However, the actual effect of this regulation has been contrary, resulting in insurance companies withdrawing and many homes being unable to obtain insurance.

Despite facing a serious risk of wildfires, California's home insurance rates are relatively low nationwide. Insurance companies claim they cannot charge enough to cover the increasing risk.

This poses a nightmare for homeowners and those planning to buy homes, as most mortgage lenders require borrowers to purchase home insurance. Therefore, a comprehensive reform of home insurance in California is undoubtedly good news, even though it may lead to an increase in insurance premiums.

A recent report predicts alarming losses due to wildfires in California and other parts of the U.S. The report indicates that since 2009, the cost of wildfires has increased by 270%, and the number of buildings destroyed by wildfires has increased by 335%.

Not only is the risk of wildfires increasing, but the report also points out that fires are causing more severe damage to homes, partly because more homes are being built in fire-prone areas. In the western U.S., nearly 5 million properties are at risk of insurance cost increases or non-renewal.

One of the most dangerous areas is Riverdale, where 1,612 buildings are expected to be destroyed by wildfires this year. By 2053, this number is projected to increase by 45%, reaching 2,336 buildings. They estimate that just in the Riverdale area, the average annual cost of these losses will approach nearly $1.5 billion in 30 years.

As a homeowner, regardless of where you live, the increasing climate risks mean you will need to pay higher insurance premiums in the coming years. Insurify predicts that the average homeowner insurance premium will rise by 9% in 2023.

If you currently pay $2,500 annually, it could increase to $2,725, and if you live in a high-risk area, the cost could be even higher.

Recently, California Insurance Commissioner Ricardo Lara announced a reform decision after years of debate between local politicians and insurance companies.

For example, the largest homeowner insurance company in the U.S., State Farm, announced it would stop issuing new policies in California. AIG made a similar decision back in January, and Allstate followed suit in June.

Unlike utility companies, insurance companies are not obligated to provide insurance. When large insurance companies exit an area, residents are forced to choose the California FAIR (Fair Access to Insurance Requirements) Plan as a last insurance option.

However, this plan is expensive and offers inadequate service. Additionally, consumers cannot compare prices between different companies, and the coverage under the FAIR plan is limited, essentially serving as a temporary solution.

Phil Irwin, a representative of FAIR, states that the plan's average annual premium is around $3,200. In comparison, research from The Ascent shows that the average annual cost of homeowner insurance in California is $1,252. This is a significant burden on people's budgets. What's more concerning is that a report from First Street shows an 800% increase in cases of non-renewal in some areas of California from 2015 to 2021.

How will the home insurance reform in California affect consumers? If you live in California and cannot find affordable home insurance, these reforms should help. On one hand, this almost certainly means insurance companies can charge higher premiums. On the other hand, the return of large insurance companies to high-risk areas reduces people's dependence on the FAIR plan.

Comparative shopping is key to reducing insurance costs, but if no company is willing to provide insurance, you won't be able to compare. The return of large insurance companies also makes it possible for you to bundle auto and homeowner insurance, enjoying discounts of up to 25%.

Another way to lower insurance costs? California's reform requires insurance companies to reduce premiums when homeowners take measures to protect their property from wildfires. You can increase your wildfire risk score, and consequently lower your premium, by participating in community disaster reduction projects or enhancing fire prevention measures for your property.