NEW YORK— Ongoing quarreling over the budget in Washington iscausing anxiety in the insurance industry—much more concern, itwould seem, than the industry's ability to handle random weatherevents.

The current stalemate is causing an “incredible pent-up demand,”says Liam E. McGee, CEO of The Hartford, at the 17^thannual Property/Casualty Joint Industry Forum at theWaldorf-Astoria in New York on Jan. 15.

“It is so frustrating to me, hearing from customers,” McGeeadds. A survey Hartford did of small and mid-sized businesses showsthat pessimism toward Washington has doubled in six months, headds.

McGee says he has been told by business owners that they won'thire until they are more certain about the direction of theeconomy.

A whopping 94 percent of executives surveyed at the conferenceby the Insurance Information Institute say the budget fight inWashington will affect the U.S. economy.

But what that will mean exactly is not known. State Farm CEOEdward B. Rust Jr. questioned whether customers would develop a“hunker-down” mentality, and whether such a psyche would cause areversion in the uptick in car and home sales seen in 2012, forinstance.

The possibility of these trends remains to be seen but, becauseof the “fragility of recovery” in the economy, the “wrong actioncan cause withdrawal” among consumers, Rust says.

For now, the uncertainty might affect exposure, or aconsumer's willingness to pay for needed rate increases in thehomeowners' insurance market, says McGee.

And rates will continue to rise. Time and again, panelists atthe forum reminded listeners of the fact that the industry'sprofits in the homeowners' line do not cover the cost ofcapital.

John J. Bishop, CEO of The Motorists Insurance Group, calls thehomeowners' insurance market “very distressed,” with just one yearof underwriting profit turned in over the last decade.

“I've seen more rate activity in the last 5 years than in anyother period,” he says.

In the meantime, Nikolaus von Bomhard, CEO of Munich Re, says,“I doubt we'll see a market-changing event any time soon.” Theindustry can handle large, random weather events.

“Mankind: that's what gets us in trouble,” he says.