San Francisco (MarketWatch) — As oil keeps flowing from an uncapped well alongside the sunken hulk of the Deepwater Horizon, the insurance industry is becoming more concerned about the cost of the disaster. At first, the industry focused on the rig itself.

Transocean Ltd., its owner, has $560 million of insurance covering total loss and wreck removal. Several insurance industry executives have estimated this could be an $800 million to $900 million event.

But a much bigger hit could come from liability claims stemming from the oil spill. That's especially true if lots of oil pollutes the shorelines of Florida and other states around the Gulf of Mexico.

"The flood of lawyers to Florida is probably equal to the flood of oil coming to the coast," Mark Byrne, chairman of Bermuda-based Flagstone Reinsurance Holdings, said during a conference call with analysts on Tuesday.

"There are other possible losses out there, damage to shore line, damage to properties, business interruption caused by the slick."

Florida coastal residents are being advised to take photos of their properties before and after the slick hits so they can pursue BP and others for any loss they think they suffer from the pollution, Flagstone chief executive David Brown noted.

"You've now got the consequent loss of what will happen with this oil slick," he said. "So a loss not just from the fire and subsequent collapse and sinking of the rig, but also now the pollution."

BP, which is the operator on the lease with a 65 percent stake, insured itself, rather than buying coverage from insurance companies. That means the company is responsible for funding clean-up operations in the Gulf of Mexico, according to rating agency Fitch Ratings.

The cost of that could reach $2 billion to $3 billion depending on how much oil eventually reaches the shore, the agency estimated this week.

"People may claim against BP or others, but they might try to claim on their own policies for such losses," Mr. Byrne said.

Neil McMahon, an oil industry analyst at Bernstein Research, estimated that the final clean-up bill could be $7 billion, according to media reports.

Compensation will also have to be paid to other businesses hit by the slick.

The cost to the fishing industry in Louisiana could be $2.5 billion, while the Florida tourism industry could lose $3 billion, Bernstein predicted.

Compensation in the billions of dollars may also have to be paid to the families of the 11 rig workers who likely died when the structure exploded and sank. It's not clear who will be responsible for these costs.

Rig owner Transocean carries $700 million of environmental liability insurance. Cameron, which made the so-called blowout preventer that was fitted to the rig, has a $500 million liability policy.

"It's a lot of issues as to is the owner responsible or the operator, and how those contracts go," Constantine (Dinos) Iordanou, CEO of Bermuda-based re/insurer Arch Capital, told analysts in a recent conference call.

Mr. Byrne also expressed concern about potential changes in legislation that could expose oil companies to much more liability from the disaster.

After the Exxon Valdez oil spill, the Oil Pollution Act was passed in 1990. This puts a $75 million cap on the liability of oil companies for economic damage stemming from a spill.

Democratic Senators Robert Menendez, Frank Lautenberg, and Bill Nelson introduced legislation this week to raise the cap to $10 billion. "BP says it'll pay for this mess. Baloney," said Nelson. "They're not going to want to pay any more than what the law says they have to, which is why we can't let them off the hook."

BP has said it will pay all necessary and appropriate clean-up costs, along with "legitimate and objectively verifiable claims for other loss and damage caused by the spill".

Yesterday the company said it made $25 million grants to Louisiana, Alabama, Mississippi and Florida to help them contain the oil spill.

"It is also vital that we work together with government and potentially impacted communities to protect the shoreline from any impact of the spill," BP CEO Tony Hayward said in a statement. "We hope these grants will support the effective deployment of pre-prepared response plans in each state."