[big_chungus]

I think the point is that there are externalities of me building a tinder-box house; namely, the costs of the fire-fighting and potentially burning down the homes of my neighbors. One of the keys to privatization is each would be responsible for the damage his house burning down could cause to others. Thus, if I want insurance, my company may give me a huge discount for building a house of concrete. It would also likely provide my fire-fighting, as it's cheaper than paying for a whole new house.