Insurance companies often require higher standards than building code demands.
Also, politically, the reason some societies have strict building codes is because there is a group-- insurance companies-- that have an economic incentive to push for stronger codes.
I heard a lecture once by a structural engineer who had worked in hurricane alleys in Florida. He said there was a cycle of tightening up rules (for instance on the number of nails needed to hold down a roof) after big storms, then relaxing them as the years went by. Without a big storm to remind people just why the rules were tightened up, there was inevitable pressure to relax them in order to make it cheaper to build.
This is more off-topic, but another interesting thing he said was that you could get a sense of maximum local wind speeds by looking at airstream-type trailers. They are, as you might expect, extremely well engineered to resist the sorts of wind pressures you get at highway speeds, so winds of 60-80mph don't tend to rip the hide off them. But you get above a certain threshold, and they all tend to give way at once.
Another factor is, if the storm is big enough, the feds step in with FEMA and bailout people who are underinsured.
People living in Florida's hurricane alley pay nowhere near the cost of the risk of living there, and the result is overbuilding, and catastrophic property losses when the big one eventually does hit.
Its true that government standards get tightened and relaxed, just as they do in banking. Which is probably a good reason not to rely upon them. They are dumbed-down, lowest common denominator standards anyway.
In a recent storm I saw a tree that had visibly fallen against a fully brick house and had merely slid down the wall. The house stood almost immaculate (aside from the smeared wall), with a broken window and a crushed fence.
I have noticed that roofers here in Ontario are rather lax in competency here. My in-laws townhouse just got re-shingled and they lost an entire shingle sheet (it had never been touched by a nail). Their neighbour in the building lost two shingles, one above the other, on a joint in the plywood and above the black-paper. They're lucky the management company got on the ass of the roofers and got it fixed as we got hit by about 50mm that weekend.
It's not just roofers. We've done a lot of runs out to repair siding jobs. We've seen entire siding sheets that had been installed with a single nail. They'll do like 2-3 rows with barely more than a nail per sheet and then nail an entire row properly, but because there's so much weight on the row that's nailed correctly that heavy-winds can cause the sheets to stretch and then when a big gust hits it can pop the sheet out of the lock.
Seriously, being used to solid reinforced concrete or brick buildings, building shoddy wood structures covered with paper-thin siding in tornado or hurricane alleys and then crying your eyes out when the inevitable happens is almost funny.
Insurance companies can coexist perfectly with lax building codes so long as the market can bear higher premiums - if cost of damage multiplied by probability of earthquake over a time frame is lower than the increased cost of construction or remedial work then nothing gets done. Engineer cartels and political will to avoid preventable casualties at all costs are more important in saving lives here than the free market.
Seems like a good illustration of just how insidious systemic corruption can be to the development of a nation.
"The Industrial Revolution in Japan occurred during Meiji period." [September 1868 through July 1912]
Not saying I'd like that, but interesting to see how other things already operate that way.
It would also make it economical for insurance companies to quite literally be thieves, and uneconomical for individuals not to pay protection money to the most powerful (and likely also most expensive) insurance company.
While savvy investors may indeed underestimate low-probability risks, I take issue with any claim the mortgage bubble showed this. The sad end of that bubble was an extremely high probability event.
The main thing the debacle showed was the willingness of many people to believe fallacious arguments which made reference to claims about low probability events. Even there, the willingness of investors to believe that standard "this time it's different" line has been shown over and over again.
And, for some, having friends in the government to bail out the fools who bet on the bubble growing forever so you can get paid.
http://www.schneier.com/blog/archives/2009/11/fear_and_overr...
Or table here: http://www.schneier.com/essay-170.html
A free society is not exclusive of a strong government to protect property rights and handle externalities economically. It's when they take liberties with their charge when things get bad.