LOS ANGELES, OCT. 3 -- Insurance industry leaders so fear financial collapse from a catastrophic California earthquake that they are preparing, with the encouragement of federal officials, a plan for major government backing in any future seismic disaster.

Thursday's earthquake near Whittier, at 6.1 on the Richter scale the most serious Los Angeles County temblor in 16 years, caused a relatively modest $70 million in damage. But insurance industry executives expect damage claims as high as $70 billion after a magnitude 8 quake, and they want federal help in paying them.

Only about 20 percent of California homeowners have earthquake insurance, although all 650 homeowner insurance companies here are required to offer it. Sheldon Davidow, chief consultant to the state senate insurance committee, said the large number of uninsured buildings means a devastating quake could leave millions of damaged or destroyed structures with no resources to rebuild. Also, he said, many insurance companies may not have the money to pay claims.

"One of the concerns is that a lot of the insurance companies are going to go under," said Peter Stromberg, deputy director of the state seismic safety commission. "That's what happened in 1906," the year of the great San Francisco earthquake.

"A lot of us are concerned not only about Joe Sixpack losing his home, but the related issue that if Joe Sixpack can't pay his mortgage, what that will do to the banking system," Davidow said.

Harold T. Duryee, administrator of the Federal Insurance Administration, part of the Federal Emergency Management Agency, has urged industry leaders to submit their federal earthquake insurance plan to Congress, with the understanding that private insurers would still have to take some of the risk.

David Brummond, assistant general counsel of the National Association of Independent Insurers, said a plan should be ready by the end of the year. He said congressional support is uncertain. "We have to educate both the public and the Congress," he said.

If a plan for federal backing of the earthquake insurance system dies, he said, that does not preclude a substantial drain on taxpayer dollars after a big quake. "If there are no other alternatives, the federal disaster relief program is the only source of help for earthquake victims," he said.

Insurance company officials fear a collapse of their coverage system despite a 1985 state law that significantly reduced their earthquake liability in California. Before then, courts allowed homeowners without earthquake coverage to claim full payment under regular homeowner policies if some factor covered in a policy, such as inadequate construction, contributed in any way to the earthquake damage. In return for this ban on "concurrent causation" damage awards, the industry agreed to another provision of the same law requiring it to offer earthquake insurance when a homeowner policy is first written or renewed.

Since then the portion of policies containing such coverage has jumped from 7 percent to about 20 percent. Tim Dove of the Western Insurance Information Service noted that further growth has been limited by the expense -- annual coverage on a $100,000 home is about $250 -- and a large deductible, which usually leaves the owner of such a house responsible for the first $10,000 in damage.

In Whittier, the suburb 10 miles east of Los Angeles where damage Thursday was most severe, the limits of earthquake coverage were apparent in the quiet atmosphere of the Farmers Insurance Group office on South Painter Street. The telephone rang infrequently Friday afternoon. Agent Clifford Collipriest said only 15 of his 150 homeowner policies had earthquake coverage, and so far he had received only two claims.

Michael Sullens' immaculately restored 1917 Victorian-style frame house lost its chimney and split at the seams, causing at least $50,000 in damage. But he had earthquake coverage. "I had read somewhere that the Whittier fault line had not shifted in 60 years, so I thought it might be due," he said. "It was absolutely dumb luck."

Assistant state insurance commissioner Richard Roth said his annual survey indicates insurers would have to pay about $5 billion in claims for shaking damage if an 8.25 magnitude earthquake hit Los Angeles today. If the same quake hit San Francisco, the claims would total about $3.7 billion.

Because of heavy investment in the state insurance industry by large reinsurers, including several foreign companies, the industry should be able to pay those claims, Roth said. Other state officials and insurance industry executives were skeptical, however, and noted that Roth's survey did not include fire damage, or automobile and workers' compensation claims.

Brummond said it is extremely difficult to predict the amount of damage from a large quake, although a law passed this year mandates a study of areas with poor soil conditions to get a better idea of the risk. One federal study has predicted up to $60 billion in damage and 21,000 deaths from a 7.5 magnitude quake on the Newport-Inglewood fault.

Brummond estimated claims in Los Angeles could go as high as $40 billion to $70 billion: "I assure you if we only had $5 billion to worry about, we would not be going to the federal government for help."Special correspondent Matt Lait contributed to this report.