The National Consumer Insurance Organization, a Washington-based "public interest group," has criticized plans by a consortium of insurance companies to "insure" retroactively liabilities stemming from a fire last November at the MGM Grand Hotel in Las Vegas.

NCIO contends the added cost of providing such retoractive "insurance" may fall on small policyholders and the tax-paying public.

But an executive for the brokerage firm that is handling the unusual insurance package said it merely showed how insurers arre able to react to emergencies. "I'm truly proud of the way that the industry has responded to the client's needs," said John F. McCaffrey, executive vice president of Frank B. Hall Inc. in Briarcliff Manor, N.Y. The trade press has reported that $1 billion in claims have been filed against MGM Grand Hotels Inc., far exceeding the company's $30 million in liability coverage. Eighty-four persons died in the Nov. 21 fire at the massive casino-hotel complex.

Retroactive insurance of $170 million above the $30 million is being purchased to cover claims from the fire. The premium for the coverage is an estimated $37.5 million.

The Hall firm is spreading the coverage among insurers here and abroad. Those firms, in turn, will reinsure portions of the coverage to spread the risk broadly.

The retroactive insurance for the Las Vegas fire was criticized in a letter from J. Robert Hunter, president of NICO, to the 50 state insurance commissioners. A copy of the Feb. 27 letter was sent to Roscoe Eggers, commissioner of the Internal Revenue Service.

In the letter, Hunter said that "all the problems associated with this unusual deal stem from the fact that this is simply not insurance."

"Insurers have always said that you can't insure a burning house," he said, "but when the client is big enough, apparently you can insure one that's already burnt."

McCaffrey said uncertainty about the ultimate amounts of the claims settlements makes it a valid form of insurance.

"It's not like property insurance where a building is insured for x-dollars and it burns down -- then you're covered for the amount of insurance. In liability insurance, we don't know what the costs will be until all the claims are settled. Therefore, you have risk so you have something that's insurable," said McCaffrey.

Hunter said that one result of this "non-insurance" could be higher rates for "true insurance policyholders." But McCaffrey said, "Insurance coverage of $170 million is minute compared to the billions of dollars of insurance transacted every year. The effect will be insignificant."

Nevada Insurance Commissioner Don Heath argreed, but added that he had not seen the Hunter letter.

However, Heath, like Hunter, questioned whether the coverage is truly "insurance."

"My chief concern throughout the whole thing is determining what it is," said Heath. "If it's not insurance, maybe it's simply a reserving program. But I'm not going to speak to that until I have all the facts before me."

If the retroactive policy is not insurance, then that could have serious tax implications.

"It is even conceivable," said Hunter, a former official at Department of Housing and Urban Development, "that some insurers, currently reviewing their 1980 income tax situation, might hunger for a retroactive 'tax shelter' by buying into a loss for loss reserve puposes that occurred prior to Dec. 31, 1980, as the MGM fire did. In a time of unusual profitability for insurers [due to unprecedented interest rates], the need to shelter income is unusually acute."

At the same time, said Hunter, MGM Grand Hotels might also be able to write off loss reserves. "This means that the liability claims from the fire will, in large measure, be borne by the taxpayers," he said.

But Hunter added, if this is not insurance, then "the insurance provisions of the Internal Revenue Code should not apply, and no such tax advantages would flow to the parties to the transactions."

McCaffrey said, "I'm not a tax consultant or accountant. I'm an insurance broker, so I can't address this." CAPTION: Picture, Firemen clean up inside the casino of the MGM Grand Hotel and Casino in Las Vegas Nov. 21 after fire killed 84 and generated more than $1 billion in insurance claims. AP