WASHINGTON—Energy insurers and reinsurers cannot provide the $10 billion in liability capacity needed if lawmakers increase the liability cap in federal law to that level, the Insurance Information Institute president told a congressional panel Wednesday.

Before III President Robert Hartwig spoke to the House Transportation and Infrastructure Committee, the sponsor of the Big Oil Bailout Prevention Act of 2010—Rep. Rush Holt, D-N.J. —said the Oil Pollution Act of 1990’s liability cap of $75 million in damages for oil spills is “laughable.”

Although the law requires responsible parties to pay for cleanup costs, the $75 million liability cap for offshore facilities has not been increased since the law’s enactment.

Referring to the damages caused by the explosion and fire of the Deepwater Horizon offshore oil rig, Rep. Holt said BP P.L.C. “should be liable for every last cent” of damages caused by the spill. “Revisiting the liability issue is long overdue.”

He said his bill would increase the liability limits retroactively to apply to the Deepwater Horizon losses.

BP self-insured its liability and property exposures, Mr. Hartwig noted in his testimony. He also said worldwide energy premiums total between $2.5 billion and $3 billion a year and there is no indication that the liability capacity is shrinking.

But higher prices don’t appear to be attracting additional capacity. “Contributing to the skittishness of new capital is the fact that the Deepwater Horizon event could well unleash one of the biggest tort actions in United States history,” Mr. Hartwig said. “As a practical matter, energy insurers and reinsurers simply cannot, at the current point in time, provide $10 billion in capacity.”

In addition to the market generating no more than $3 billion in annual premiums, factors he cited include the possibility that higher liability limits would increase demand and perhaps exhaust available capacity. Mr. Hartwig also said underwriting for very low-probability, extremely severe events is “very challenging.”