It hasn't been a good year for those in the risk management business.

When Mary de Campli, Alexandria's risk manager, got the bills in June for two liability insurance policies covering the city's public officials and law enforcement officers, the bills came to $233,000 -- a 400 percent increase over what the city paid last year.

"And we're not done yet; the year's not over," said de Campli, who estimates that when all policies are renewed this year, the city's total bill will be $400,000, compared with $223,000 last year.

About the same time, Virginia's Director of Risk Management Charles F. Scott was soliciting bids on a liability insurance program for state employes and "came in absolutely dry," without a single bid for a policy that cost the state $871,000 last year.

"I've never seen anything like this," Scott said.

In an insurance market that seems to grow warier each day, local governments are facing enormous price increases and even policy cancellations at a time when they also find themselves increasingly battling multimillion-dollar liability suits.

"Almost daily we get calls from state organizations looking for insurance . . . . It's pretty clear it's a nationwide problem," said Donald Jones, assistant executive director of the National League of Cities.

As a result, local government officials are facing tough decisions on whether to pay the huge increases for coverage or opt for more risky self-insurance programs. In some cases, they are going without liability insurance altogether.

Local government officials say not having insurance is chancy at best, considering the increasing numbers of lawsuits against governments that include claims for slips and falls, property damage, civil rights violations, employment discrimination, antitrust violations, rezonings, false arrest and injuries resulting from environmental accidents.

"Cities nationwide are experiencing a veritable explosion in municipal liability," D.C. Corporation Counsel Inez Smith Reid told the D.C. City Council in May when she asked for an additional $1 million for the District's $5 million fund to cover settlements and judgments that the city is expected to pay this year. From 1975 to 1983, the amount the corporation counsel paid in such settlements rose from $1.7 million to $5.2 million.

Reid cited, as the kind of case that localities must be insured against, the recent one in which a D.C. Superior Court jury awarded $250,000 in damages to a 15-year-old girl who five years ago was lured out of an unsupervised Southeast Washington classroom and sexually assaulted.

In a celebrated 1983 case, a U.S. District Court jury in the District awarded $5 million to Alvin Biscoe, who lost both legs after he was hit by a car being chased by two Arlington County police cars in 1979. The award was later reduced to $4.3 million.

A soon-to-be-released study done by the Wyatt Co., an actuarial consulting firm, and the International City Management Association found that public officials across the country had a 50 percent increase in lawsuits filed against them in the last three years.

In 1982, 14 percent of the localities surveyed had suits pending against them; the largest settlement that year was $230,000, and the largest claim sought by a litigant was $40 million, according to the Wyatt Co.'s Jim Swanke, who conducted the survey.

Three years later, 28 percent of the officials surveyed were facing suits; the largest settlement was just under $2 million, and the larger claims ranged from $100 million to $200 million, Swanke said.

The impact that rising insurance costs and court settlements have on local governments is difficult to measure, but as Natalie Wasserman, executive director of the Public Risk and Insurance Management Association (PRIMA), said: "The taxpayer is going to have to bear the burden . . . . Eventually, who pays? It's the public."

A report on the financial health of American cities issued in March by the Advisory Commission on Intergovernmental Relations noted that at least four localities had been forced into bankruptcy by large court awards. It warned that the trend toward high court judgments "appears likely to cause more financial emergencies in the future."

At one time, the principle of "sovereign immunity" protected governments from such lawsuits by individuals; but since the early 1960s, the courts and state legislatures have eroded that protection. Local government officials are renewing pressures on state legislators to put mandated ceilings on court judgments. Already, 28 states have such caps, and PRIMA's Wasserman said that the other states "are going to have to take a look at caps."

Most local governments buy a number of different policies to cover their automobile fleets, public officials and police force, water treatment and sewage facilities, and bus systems. Many of the policies are acquired through a competitive bidding process.

But along with other insurance shoppers -- doctors, day-care centers, restaurants and universities -- local governments this year are feeling the repercussions of an insurance market that is feeling the pinch from the industry's most devastating year since 1906, the year of the San Francisco earthquake.

"It was a very, very bad year," said Mavis Walters, senior vice president of the Insurance Services Organization (ISO). The property and casualty insurance industry suffered a 1984 pretax loss of $3.8 billion when investment income failed to cover its payouts, she said. ISO estimates that in 1985, demand for insurance will outstrip what the industry can supply by $7.2 billion, Walters said.

Some insurance companies, seeking to recoup losses caused by what they say were previously artificially low rates, are withdrawing entirely from the more risky and more litigious areas, which include local government liability and environmental accidents, industry officials said.

The increasing litigation has elicited warnings from the London-based insurance giants on whom the American insurance industry depends to back up its financial risks. When these so-called "reinsurers" are reluctant to lend their financial backing to U.S. companies, it decreases the capacity of those companies to offer insurance here.

Lloyd's of London Chairman Peter Miller told the National Association of Insurance Commissioners in Kansas City, Mo., last month: "We can no longer live with the uncertainty engendered by the vagaries of the American legal system as it stands today."

One such uncertainty is the courts' expanding interpretation of responsibility for damages resulting from long-term environmental accidents. In recent years, courts have been ruling that insurance companies cannot escape responsibility for damages from an environmental pollution that may take years to detect, such as toxic waste dumps or leaks from underground storage tanks.

As a result, local government officials are being told that environmental coverage will no longer be part of their general liability policies. If customers want it, they must buy a separate policy at much higher prices.

Local governments that foresaw the current price crunch and reduced their dependence on purchased insurance by going for a self-insured program are weathering the present crisis best, officials said, and are quickly being joined by other municipalities.

The Virginia Municipal League's financial director, Margaret Nichols, said a league-sponsored self-insured "pool" has acquired 23 new members from among the state's school boards, counties and cities since last April. Until then the program had attracted only 18 members since it was launched a year ago, she said.

But even self-insurers are not immune from current price increases. To guard against catastrophic losses, it is traditional for self-insured localities to buy "excess" insurance on the market. The costs of such policies have risen astronomically.

Baltimore, which has been self-insured for property losses for 15 years, saw its excess insurance coverage costs leap from $315,800 last year to $1.7 million this year, according to Douglas Pierson, insurance analyst for the city.

Dallas, which has been self-insured for three years, decided to go without its "excess" policy altogether after the cost went from $157,000 in 1984 to $1.5 million this year, said Mark Ferraro, Dallas' risk manager.

"Basically, it means that we have no place to turn if we have a catastrophic loss," Ferraro said.