NEW YORK (CNN/Money) - As Hurricane Rita barrels towards the Gulf Coast, insurers and reinsurers are bracing themselves for a second costly disaster in less than one month.

The good news is that insurance experts believe the industry has enough capital to pay off claims without facing any insolvencies.

The bad news is that the industry is facing the likelihood that global environmental changes could make Hurricanes Katrina and Rita the norm rather than the exception – a scenario that could force the industry to raise rates as early as the beginning of 2006 and rethink just how much exposure it's willing to have in hurricane-prone regions.

"We are certainly expecting that for the next 20 years or so we will be in a cycle of more frequent and intense storms," said Robert Hartwig, chief economist at Insurance Information Institute. "There's going to have to be an adjustment in the industry."

According to risk modeling firm Risk Management Solutions, Hurricane Katrina could cost the insurance industry between $40 billion to $60 billion. Reinsurers, companies that take on a fraction of the risk from insurance companies, could ultimately pay between $15 billion to $20 billion of that estimate, said Matt Mosher, group vice president of property-casualty at A.M. Best, a New Jersey-based insurance ratings agency.

Some insurers and reinsurers have come out with preliminary estimates from Katrina. Reinsurer RenaissanceRe (Research) Holdings expects to incur about 1 percent of total insurance industry losses from the hurricane while ACE Ltd (Research) sees losses of $450 million to $550 million. AIG (Research), the world's largest insurer said it expects losses from Katrina and other catastrophes to cost the company $1.1 billion and Berkshire Hathaway (Research) said it will incur 3 percent to 5 percent of industry losses related to Katrina.

Preliminary estimates for Hurricane Rita peg insured damages of $9 billion to $18 billion, according to risk modeling firm Eqecat.

Cliff Gallant, equity analyst at Keefe, Bruyette & Woods said while the insurance industry is $70 or $80 billion stronger than it was after Sept. 11 and can withstand another major storm like Hurricane Rita, if there are more catastrophic storms to come this hurricane season and going forward, the industry may find itself in a cash crunch.

That fear will likely prompt reinsurers to demand double digit rate increases for property lines, starting with their Jan. 1 2006 renewal period, analysts said.

A.M. Best's Mosher said reinsurers are also likely to rethink some of their exposure to high-risk regions like the Gulf Coast, which could reduce the capacity of reinsurance available to primary insurance companies

With reinsurers expected to pull back from the market and rates expected to rise significantly for insurance companies, it's only a matter time before those rate increases trickle down to consumers.

In the wake of the four hurricanes to hit Florida last year, the average homeowner rate in the state climbed 15 percent to 30 percent, said I.I.I.'s Hartwig. Hartwig said it's likely that rate increases will be highly focused in high-risk areas, and rate increases for other regions will be determined on a state-by-state basis. He added that insurers will likely raise rates by some level across the country to make up for some of costs related to higher reinsurance premiums.

Hartwig said while it's still too early to determine what kind of rate increases will occur in the wake of Hurricane Katrina – and potentially Hurricane Rita – a lot depends on what state insurance regulators and the federal government do to help ease some of the risk from the insurance industry.

Since Katrina, insurance lobbyists have been calling on the government to set up some financial backstop for the industry, such as state catastrophe funds similar to the one created in Florida after Hurricane Andrew in 1992. Insurance commissioners have also bandied about the idea for a national catastrophe fund, a pooling system for the industry to share the risk or setting up tax-deferred reserves to pay out claims for future catastrophes.

"We have a blue print for how to make a national or state fund work after the success of the Florida catastrophe fund," said Joseph Annotti, spokeman for Property Casualty Insurers Association of America. "Commissioners are calling for special sessions in legislature and are hoping that the process will be more seamless than it was in Florida."

After Hurricane Andrew, reinsurance dried up in the state and there was a mass exodus of insurance companies from Florida.

Annotti said the industry and the government has come a long way since Hurricane Andrew but the changing nature of global climate is going to necessitate some changes for the industry.

"The local, state and federal government are still at quite a distance away from a financially feasible solution, " Hartwig said. "While there needs to be a way to assure the financial recovery of hurricane victims, you also need to make sure the risk is reflected in the price that people that live in high-risk areas pay."

Otherwise these consumers ultimately may not have the insurance they need to rebuild in the future.

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