[Edit] Or to rephrase the question, do disaster relief programs create a moral hazard that should be countered by making earthquake insurance in high-risk areas mandatory (with possible subsidies by the state)?
> Capt. Leonard D. Wildman of the U.S. Army Signal Corps reported that he "was stopped by a fireman who told me that people in that neighborhood were firing their houses…they were told that they would not get their insurance on buildings damaged by the earthquake unless they were damaged by fire".
[1] http://en.wikipedia.org/wiki/1906_San_Francisco_earthquake#S...
The city was also particularly vulnerable to destruction from fire. Lots of unstable landfill, the water used for fire fighting was in underground cisterns that were damaged, and key firefighting personnel were killed.
There's a recent book "San Francisco is Burning" that is a really good account.