WHEN the regional heads of State Farm Fire & Casualty Co. gathered at corporate headquarters in Bloomington, Ill., this fall, hurricane Opal was angling for cities on the Gulf Coast.
''Our executives were quaking in their boots,'' recalls State Farm spokesman Jerry Parsons. The largest provider of homeowners insurance in the country was bracing for a multibillion-dollar bill, an expense the company could not easily afford given its hefty catastrophe costs over the past six years and continuing exposure during a hurricane season that was hitting its stride.
With 19 named storms to date, 1995 will go down as the second-worst cycle for tropical storms in 125 years. If the hurricanes - as well as devastating floods, windstorms, tornadoes, and earthquakes - continue at the projected pace and expense, public and private sector officials warn that they will soon be unable to meet relief needs.
The problem is compounded by massive growth of population and development in harm's way and the fact that cost projections for insurers are wildly out of date. Also playing a part in the new economics of disaster relief: public facilities that are too large to insure, while the cost of retrofitting them to sustain disaster damage is staggering.
Tighter purse strings
In Washington, budget-balancing lawmakers, anxious to save Uncle Sam from escalating disaster-relief costs, have introduced bills that include more rigid construction standards, a cap on federal emergency assistance, and requirements for private insurance.
But insurers warn they are not up to the task. They worry that any one catastrophe could bankrupt their company. Wary of the financial risk of extending coverage to the majority of uninsured individuals and businesses in disaster-prone areas, they would rather relinquish market share than take on added risk.
''While this is a national problem, the solution starts with homeowners in disaster-prone areas accepting responsibility for insuring their own property rather than waiting for the federal checkbook to open after each calamity,'' say Reps. Bill Emerson (R) of Missouri and Norman Mineta (D) of California, co-authors of the Natural Disaster Protection Partnership Act. The bill calls for:
* Requiring strict enforcement of building codes. Had the codes been enforced during hurricane Andrew, experts say, losses would have been 40 percent lower.
* Cutting off federal relief to any homeowners without disaster insurance. Some 75 percent of the homes damaged by California's Northridge earthquake and 93 percent of those in the 1992 Midwest flood had no insurance.
* Forming a national, government-monitored, private insurance company to pool resources and help companies diffuse risk.
Right now, regional executives at State Farm don't want any more business - in fact, they wish they could lose some - on coastlines, flood plains, and fault lines, Parsons says. ''We have not canceled or failed to renew customers, but we have shut the door on any new [high-risk] business.'' Recalling the irony of this business logic, he adds, ''We're in an environment where growing is too dangerous.''
Until 1989, State Farm, like the rest of the insurance industry, enjoyed a pattern of low annual costs for natural disasters. But that year, the firm's outlays for that category hit a high of $1.2 billion. By 1992, the insurer had paid out a whopping $3.7 billion for a single disaster - hurricane Andrew. State Farm officials now refer to that storm ''as a wake-up call for our industry as well as for the federal government - telling us what Mother Nature could do.''
Both private insurers and government agencies quickly learned that ''all of the conventional models and projections about the cost of natural disaster damages were way off,'' Parsons says. That point was reinforced last year when California's Northridge earthquake exacted some $3 billion in damages.
For US lawmakers, the government's expenditure is a budget wildcard. Uncle Sam spent $140 billion for disaster relief over the past 20 years - almost a third of that since 1989. Rep. Joe Barton (R) of Texas wants to put emergency disaster relief on the budget next week with strict limits. It is now an ''off-budget'' emergency ''pay-as-it-happens'' appropriation with no restrictions. Needs exceeding budgeted funds, Mr. Barton says, will be raised through cuts in other areas of the budget or taxes.
The real uncertainty is the potential for major losses incurred by urban centers struck by a hurricane or an earthquake. ''We're not writing any new policies in Florida,'' Parsons says, ''because a mega-hurricane could bring us to our knees financially.''
Also at risk are the trillions of dollars worth of roads, tunnels, bridges, and electricity grids for which experts say there just isn't enough private-sector capital to insure.
That's one of the reasons Congress is pushing preventative measures over continued federal insurance programs. It reasons that the millions of dollars spent strengthening transportation links, dams, and other public works will save billions of dollars later.
''The devastation to property - like when hurricane Andrew hit Homestead, Fla., and homes and offices blew away like they were toys - has made government and industry rethink building codes to control losses where exposure is the greatest,'' says James Murphy, senior vice president and director of construction services for Marsh & McLennan Inc., the world's largest insurance broker.
''Now, everyone is scrambling to retrofit structures to withstand natural disasters,'' says Mr. Murphy, who is working on plans to earthquake-proof the Golden Gate Bridge. He says the $80 million needed to retrofit the bridge today pales in comparison with its estimated $500 million replacement cost. But the Golden Gate Bridge Authority will rely on federal funds to supplement its own money raised through toll fees and bond issue for the retrofit.
What the future holds
Rather than looking back on past data, Parsons says, State Farm and other insurers must look to future projections. Frank Lepore, spokesman for the National Hurricane Center in Coral Gables, Fla., notes a much stronger ''level of interest among political and commercial decisionmakers for better data and more long-range outlooks.''
But they may not like what they're hearing about ''the extraordinary growth in the population density in areas of the country where these catastrophes are taking place,'' says Christopher Guidette, spokesman for the New York-based Insurance Services Office. The US Geological Survey says 39 states have some level of seismic risk. And the National Oceanic and Atmospheric Administration calculates the number of people living in hurricane-prone areas has jumped 28 percent in the last 30 years.