NEW YORK—The insurance industry has the capital to deal with natural catastrophe exposures, but a sense of "shared responsibility" is required for markets to function most effectively in cat-prone areas, according to a panel of industry executives.

Speaking as part of a chief executive officer panel last month at the annual Property/Casualty Insurance Joint Industry Forum in New York, William J. Mullaney, president of MetLife Auto & Home in Providence, R.I., said, "I think the big thing in being able to talk about the issue is that it's a shared responsibility."

It's important that insurers have free-market pricing, Mr. Mullaney said, and that local governments have building codes in place designed to mitigate risks.

"If you allow someone to get the right price on a nonmitigated risk, you quickly spur creativity to mitigate that risk," said Pierre L. Ozendo, CEO of the Americas Division of Swiss Reinsurance Co. in Armonk, N.Y. On the other hand, preventing the industry from pricing appropriately in certain areas stifles creativity in risk mitigation, he said.

Educating consumers

That sense of shared responsibility also applies in explaining to consumers that the industry's 2006 profits represent just a single year's performance, influenced significantly by low catastrophe losses, several panelists said.

"The educational requirements and responsibilities we have are never-ending," said Martin J. Sullivan, president and CEO of American International Group Inc. in New York. He added that the industry's 2006 experience "was a one-year event. It's a marathon, it's not a sprint, and that's the point we have to educate everyone on."

Jeffrey A. Ludrof, president and CEO of the Erie Insurance Group in Erie, Pa., offered a similar view, saying the industry has a responsibility to help consumers learn from experiences such as 2005's hurricanes so that they can better understand and mitigate their exposures.

But Paula Rosput Reynolds, president and CEO of Seattle-based Safeco Corp., questioned the extent to which company CEOs could take the lead in that effort.

"It's not manifest to me that CEOs, per se, are deeply influential in terms of some of these matters," she said.

While the industry executives felt strongly about the ability of the private market to respond to natural catastrophes, they also emphasized the need for the federal government to maintain a role in addressing terrorism risk.

"I have a very strong belief that hurricanes are priceable and can be properly mitigated and monitored as opposed to something I believe cannot be, such as terrorism," said Swiss Re's Mr. Ozendo.

"Simply put, from a terrorism standpoint, you have finite capital responding to an infinite risk," Mr. Sullivan said, so there has to be some sort of federal backstop.

Looking at various other challenges facing their companies, Brian M. Storms, chairman and CEO of Marsh Inc. in New York said that from a broker's perspective, "Our challenges are really focused around our clients, more than ever."

His company is focused on the value chain between the insurer and the buyer and how the broker provides value to the transaction, he said, adding that these days, Marsh brokers often aren't talking to the risk manger, but instead to "the C suite," and the company needs to reposition itself to address that change.

On the subject of those buyers' focus, Mr. Storms said he thinks they aren't solely concerned about price. "I would have to say that while rate is a factor, that's not really the issue," he said, adding that commercial buyers are more interested in the insurer's financial strength and the company's claims paying ability and speed of paying claims.

Adding fiscal muscle

James J. Schiro, CEO of Switzerland-based Zurich Financial Services, said that despite last year's performance, insurers still have considerable work to do in strengthening the industry's financial position.

He noted that insurers are competing for capital with other industries that have a higher return on equity, so despite the industry's strong performance in 2006, strengthening the industry's returns must remain a priority. "We need to maintain discipline, Mr. Schiro said, adding that the industry also needs to better know its customers and improve distribution.

Mr. Ozendo stressed that reinsurers haven't enjoyed the same results as insurers. Reinsurers, he said, have to get better at "volatility management." In addition, "The industry's also challenged with cost management issues," he said, "Our challenge is to be more cost-effective and be able to pass that on to customers."

On the personal lines front, Mr. Mullaney said he's concerned about attempts to "commodify the business."

Ms. Reynolds, meanwhile, said she thinks the industry needs to learn how to communicate with consumers. "We live in a world of consumer empowerment," she said, yet the industry does not know the language consumers expect to have spoken to them.

Marc Racicot, president of the Washington-based American Insurance Assn., moderated the View from the Inside Looking Out panel.