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Run, Don't Walk, Away from Obvious Risk

by Marc Cherbonnier

Throughout the western states, in particular, more and more people are building their McMansions in fire-prone areas. And every year there seem to be more—and more damaging—wildfires that threaten entire towns, cities, and now even entire counties. The situation is especially severe in California, where this fire risk is aggravated by the Santa Ana winds every October. And fire risk is increasing—experts say—as global warming lengthens and intensifies these annual "fire seasons".

Enough is enough! All of us are paying too much for these repetitive catastropies. Insurance companies need to charge equitably for their home insurance policies, which means such insurance should cost much more for homes built in high-risk locations, such as fire-prone areas in the western states or flood-prone areas along our rivers and coasts.

Prudent homeowners in less risky areas—most homeowners—should not be expected to pay more for their own property insurance in order to subsidize the costs of other policyholders who want, for example, a dramatic view from their mountain or beach-front homes. And for sure—once an area is known to be subject to recurrent risk—taxpayers shouldn't be expected to rescue these risk-takers with grants and low-interest loans that allow them to rebuild where they shouldn't.

As a matter of public policy, any new construction in high-risk areas should be restricted or forbidden—but if not, anyone who wishes to assume the risk of building there should expect to pay privately for whatever property insurance might be available.

If homeowners' insurance rates are fair, based on real risks, then would-be homebuyers will be better alerted to real fire or flood risks, and can either avoid bad investments, or willingly accept the extra costs of their risk-taking.

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This story was published on October 25, 2007.