Alarmed at the sharply rising cost of hurricanes and other disasters, home insurers are pulling back from some U.S. coastal markets, warning of gathering financial storm clouds over how the United States pays for the damage of catastrophe.

The development is yet another legacy of Hurricane Katrina, whose mounting toll of destruction along the Gulf Coast has crystallized a growing industry debate about the combined effect of climate trends and population growth in coastal areas. Some believe the two are creating a risk of losses so large that insurers could be pushed to the breaking point, leaving the government and taxpayers footing the bill for the next disaster.

Since Aug. 29 – when the hurricane made landfall along the Gulf Coast – Allstate Corp., the industry’s second-largest company, has ceased writing homeowners policies in Louisiana, Florida and coastal parts of Texas and New York state. The firm has stopped underwriting earthquake coverage in California and elsewhere. Other firms have pulled back from the Gulf Coast to Cape Cod, notifying Florida of plans to cancel 500,000 policies.

Meanwhile, homeowners are moving to state-backed insurer plans of last resort, which tend to be subsidized by taxpayers, and whose costs also are rising.

As companies raise premiums, shed customers and battle homeowner claims in hurricane-damaged states, an overhaul of the industry is being promoted by an unusual coalition. It includes Allstate and State Farm Fire and Casualty Co. as well as a bipartisan group of state regulators, academic experts and former homeland security officials.

They propose establishing a greater role for the federal government in backing up new state catastrophe funds or private insurance firms when losses exceed a certain level, toughening state and local building codes and increasing premiums to accurately price risks. Some also want to potentially pool the high costs of covering perils such as earthquakes, hurricanes, tornadoes and even floods into regional or national groups to ease consumer cost, and to use some money to help improve first responders and local preparedness.

“There is a potential market failure here, if not already an actual market failure at work,” said Robert Litan, senior fellow at the Brookings Institution who is working with state regulators in California, Florida, Illinois and New York on a plan to reshape catastrophe insurance. “If we have another hurricane season this year like we had last, I wouldn’t be surprised if you see a stampede of insurers trying to get out.”

Taxpayers are already feeling the impact. While Katrina caused an estimated $38 billion to $50 billion in private insured losses, it also helped put the federal flood insurance program $23 billion in the red and prompted federal relief spending of more than $100 billion. That is set to include about $10 billion for Mississippi and Louisiana homeowners.

“The fundamental dispute is over the role of government, and whether the government should or should not play a significant role in effectively helping to diversify the catastrophic risks that this country faces,” said Robert Hartwig, chief economist for the Insurance Information Institute, the research arm of the industry.

Analysts note that seven of the 12 costliest insured disasters in U.S. history occurred in the past two years. At $57.7 billion, private insured losses in 2005 more than doubled those of 2004, according to the Insurance Services Office.

Hurricane forecasters predict five major storms of Category 3 or higher in the 2006 Atlantic season, with a chance of U.S. landfall at 81 percent, compared with a 100-year average of 52 percent. In March, catastrophe modeler Risk Management Solutions Inc. raised its estimate of insurance losses this year by nearly 50 percent above pre-2004 baselines for the East and Gulf coasts. RMS, whose estimates are used by insurers to calculate premiums, blamed “higher sea surface temperatures.”