oo long have property/casualty insurers been walking away from risk, leaving alternative markets, state and federal governments to seize a goodly share of premiums.

The alternative market - captives, self-insurance, state funds, federal programs - sucks at least $40 billion of premium annually from the private P/C market. More premium slips away each year as sophisticated risk managers experiment with enterprising programs to shield their companies against risk rather than just buying an insurance policy.The end result is that there's too much capital chasing too few property/casualty risks. The ratio of net premium written to surplus for the P/C industry has dwindled from the 3-to-1 that was routinely found 30 years ago to less than 1-to-1 now. The indisputable law of supply and demand dictates that with such an abundance of capital, prices will fall, which has produced increasingly negative industry results year after year.

Obviously, if the P/C insurance industry is to boost its return on equity, it must raise its pricing, which will increase profit. To do this, capital has to shrink, since it is unlikely that demand for insurance will increase substantially. Some industry pundits believe there is $80 billion excess capital.

One means of reducing capital is for companies to buy back their stock. But this device has limited effect and is constrained by security regulations.

Just increasing prices, however, could stir up a threatening and frightening monster - the gigantic capital of the securities realm. Its trillions of dollars of capital swirling in that vast global chasm makes the $335 billion surplus of the P/C insurance industry look like pocket change.

The securities industry swarms now on the outskirts of the insurance world, making feints - cat bonds and securitizations - to test the market. But finding that it lacks a favorable return on equity, it continues to spurn the insurance world.

But just wait: If the ROE should rise to a consistent 10 percent to 12 percent, the securities industry, with its thrilling array of financial instruments, will devastate the sluggish P/C insurance industry.

What then?

The answer is for P/C insurers to stop avoiding or spurning risk and begin assuming risk, all kinds of risk. Insurance began centuries ago to nourish commerce by leveling losses from very vulnerable enterprises - clumsy, wooden ships carrying valuable cargo in a hostile environment.

Property/casualty insurers have to underwrite risks that are considered undesirable or unavailable. There was once a saying in the insurance world before computer techies dictated operations: Any risk can be underwritten profitably given the right premium and conditions.

Here are a few unattractive risk sectors that will test the professionalism of experienced, talented, accurate underwriters and could relieve the overcapacity burden of the industry:

First, why is the U.S. government in the business of providing the capital to underwrite multi-peril crop insurance? Yes, crop/hail insurance is underwritten by private insurers, but more than $1.9 billion in premiums goes to the government each year for multi-peril crop insurance. In 1998, multi-peril crop insurance turned in an underwriting profit of $250 million, which doesn't include investment income. That's quite impressive, considering the government isn't a profit-making organization.

Second, FAIR, Joint Underwriting Associations and Windstorm plans produce about $800 million a year in premiums. Their share of the P/C market has grown from 0.6 percent in 1989 to more than 1.2 percent in 1998. These plans, now run by the states, generally do not produce an underwriting profit. But with prudent investments of premiums, the line could return a profit.

Third, about $1.7 billion in premiums comes from federally backed flood insurance annually. Private insurers won't write this line because, they say, the risk is so narrowly spread among potential insureds it would make the premium too high without support from the government.

But insurers underwrite nuclear risks and satellites. What can be more finite than these? In a curious contradiction, private insurers do cover losses from flooding above $250,000 for structures and $100,000 contents for homeowners - and above $500,000/$500,000 for commercial policies.

Granted, these sectors represent the dogs of the insurance world. Yet they can be a means for the property/casualty insurance industry to put to profitable use its burden of billions of excess capacity. And such a strategy won't incite an invasion by the securities industry.