The industry doesn't need a national catastrophe fund, three top insurance executives said at a conference here the day before California's insurance commissioner took the same stage to explain why he believes a private-public partnership for catastrophe financing is sorely needed.

Emphasizing the need to focus on rebuilding communities, instead of just adding up potential insurance losses, California Insurance Commissioner John Garamendi gave details of what he thinks is a better program to deal with natural catastrophes than the status quo.

"We need a different system to provide a financing mechanism to rebuild our communities," he said, outlining a plan that involves a layer of insurance, followed by state funds and then a federal backstop.

Mr. Garamendi spoke in New York at the 17th Annual Property-Casualty Industry Conference, sponsored by PricewaterhouseCoopers, Standard & Poor's, Black Diamond Group, Morgan Stanley and LeBeouf Lamb. His talk came two days after arranging a summit in California with commissioners from New York, Florida and Illinois to hammer out plans to attack the same issue.

At a separate session of the same conference, however, three top insurer executives–Edmund Kelly, chief executive officer of Liberty Mutual; Stephen Lilienthal, CEO of CNA; and Mike McGavick, the former CEO of Safeco–said state regulatory approval of sufficient rate levels is what's really needed to solve potential availability problems for a population that is increasingly migrating to storm-exposed coastal areas.

"There is plenty of capital for catastrophes. The issue is suppressed pricing," Mr. Kelly said. "If we could double the price of homeowners [insurance] in Florida, we could have an industry."

If regulators weren't suppressing prices, and instead allowed the market to work, he said, among other things, people would start building to code.

Regulators in Florida "are going to have to think long and hard about the market they've created," said Mr. McGavick, planning a run for the U.S. Senate. "Air conditioning made Florida possible. The lack of insurance could bring it to a grinding halt," he added, repeating remarks he said he once made to Gov. Jeb Bush.

"We had a rate [level] that we thought we could charge–reasonable, not crazy. There was a discomfort with that rate…and we have chosen to exit the state," he said.

Mr. Lilienthal, who had attended the regulators' summit, said he had presented the same conclusion there. "My personal position, and that of CNA, is that while we were very strongly behind the need for renewal of TRIA–and soon–we do not feel there is a need to put a national disaster fund [in place]," he said.

There's no ability to model terrorism, or to assess the average annual return periods of a terrorism event, he said, as opposed to natural catastrophes, which have "a certain degree of predictability."

Even though Mr. Lilienthal had spoken at the summit, neither he nor the others were privy to all the details of the proposal that the summit regulators plan to take to Congress, which provides for a federal backstop as a top layer of funding. And while Mr. Garamendi had not heard the insurers' comments, he seemed to agree with the need for adequate rates.

An audience member told the commissioner that, historically, insurers have been asked to provide ever-broadening coverage but have not received approval for sound rates to pay for the coverage. He responded that "politically, it's easier to wait for the event and borrow money from our grandchildren, but we ought to take personal responsibility for our own safety. It's better to pre-fund these things, [and] the appropriate rate–premium–has to be there."

Giving some background about the impetus for the regulators' proposed plan, Mr. Garamendi told conference attendees there are "two radically different views" following a catastrophe. Insurers are focused on questions about potential losses and appropriate premiums. For devastated communities, on the other hand, the question is "what's left behind," he said.

In post-Katrina New Orleans, where many homeowners didn't buy flood insurance, he said, "the wealth of that community is gone" once the principal assets–people's homes–are destroyed. "How do you rebuild that community? We need a different model."

Further supporting his view, he noted that under the current model, insurers are "running away" from Florida, while only 14 percent of homeowners in California buy earthquake coverage. If an earthquake happens, they're out of business, he said. What's left is a community without an ability to rebuild when it happens, he said, "and it's going to happen."

Several audience members who own homes in California countered his scenarios of dire consequences with what Mr. Garamendi came to refer to as "the Airforce One" mentality. These people are "betting that the president is going to show up and money is going to fall out of the plane."

He conceded that an after-event federal bailout of a storm-torn community is "not a bad bet," but "anybody who thinks the federal government is distributing that money effectively or efficiently [in the Gulf] hasn't been reading the newspapers."

High premiums for limited coverage force many California homeowners to gamble that a quake won't happen this year, and those who do buy policies live in the riskiest areas, creating a small risk pool and exacerbating the situation.

"We need to create a large risk pool," he said, advocating a plan that spreads the risk "across the nation." Under such a plan, Californians would "pick up some Florida risk for hurricanes," and vice versa.

Mr. Garamendi called the idea a "pre-funded" plan, referring to the fact that premiums are paid in advance. He also noted that prices would be "risk-based."

That will be "a hard-sell" for an elected commissioner such as himself, he conceded, but added that those who want to live in California "are going to have to pay" for the privilege, while Montanans will pay less.

"Do we have a shot at it? We have to," he said, noting that, at the summit, modelers presented the impact of a hurricane on Long Island, an earthquake in the Midwest and terrorism on the West Coast–all possible scenarios that could wipe out the economy in those regions.

At the earlier session, the executives hammered away at the concept of federal involvement in providing coverage for natural catastrophes.

"The biggest catastrophe would be to have the federal government involved," Mr. Kelly said, drawing an analogy to the federal flood program. "It was originally set up to help poorer people," but within a few years, "it's become a way for the middle class and affluent to build homes on the outer banks. When you set up a federal backstop, you get all the moral hazard you would expect."

Mr. McGavick said the private insurance mechanism has worked as expected in areas hard hit by storms. "Our people were on the front lines, ready to go in and help people, like they're supposed to, but the federal program…is a disaster," he said.

Mr. Kelly added that "Katrina was not a natural disaster. Katrina was a disaster of federal management of the levee system…It was a federal disaster caused by federal mismanagement."

Quoteboxes, with mugs:

Flag: Clash Over Catastrophes

"Politically, it's easier to wait for the event and borrow money from our grandchildren, but we ought to take personal responsibility for our own safety."

John Garamendi

California Insurance Commissioner

"Katrina was not a natural disaster. Katrina was a disaster of federal management of the levee system…It was a federal disaster caused by federal mismanagement."

Edmund Kelly, CEO

Liberty Mutual

"Air conditioning made Florida possible. The lack of insurance could bring it to a grinding halt."

Mike McGavick, Former CEO

Safeco