Skyrocketing premiums and the declining availability of some kinds of insurance have pushed thousands of small-business owners to the brink of financial catastrophe (see "Going Bare," INC., October). The crisis has finally galvanized them into a united political front whose force is all too rarely felt in Washington, D.C.

Members of Congress and small-business lobby groups were besieged last summer with calls and letters from business owners, who demanded federal intervention to ease their plight. But the slow reaction of Congress, and the political entanglements that will constrain the legislation it considers in the months ahead, provide a stark reminder that even when small business unites on an issue, it is poorly positioned to work its will.

On the insurance issue, the playing field is crowded with powerful lobbies. The insurance industry is represented by the American Insurance Association and more than a dozen other trade associations, lobbies, and "information institutes." Then there are the trial lawyers, whose association of more than 60,000 members controls one of the richest political action committees. Consumer groups, another lobby, can launch massive letter-writing campaigns. Finally, labor organizations throw their weight around with campaign contributions and large, cohesive voting blocs. Against such competitors, even Washington's most influential small-business lobby, the National Federation of Independent Business (NFIB), is overmatched.

As a result, small business has been relegated mainly to the sidelines, forging alliances of convenience with some of the lobbies. But each of those lobbies has its own agenda, making small business an unlikely bedfellow for any of them. Insurance companies argue that the problem lies in the courtroom, where awards in liability cases have skyrocketed. Many business lobbies agree that legal reforms are needed, so they have allied themselves with the insurers to support bills that would cap damage awards and set federal liability standards.

The recipients of damage awards -- lawyers, consumers, and labor -- say that the crisis derives not from the litigation system but from the cyclical volatility of the state-regulated insurance industry. When interest rates were high in the early 1980s, insurance companies competed to write policies and thereby bring in premium money that they could invest. Many of those policies, which turned out to be unwise risks, are now draining insurance company reserves, leading to higher premiums and canceled policies. The alliance of lawyers, consumers, and labor favors federal regulation to eliminate these excesses and make vital insurance available.

Business groups might gain from either approach, but so far they have refused to break with their insurance-industry allies, who wouldn't go along with new federal rules. Insurance lobbies admit that industry cycles cause some problems, but they won't budge from their insistence that reforms focus on the court system. Small business, lacking both clout and courage, is caught betwixt and between.

A prime example is product-liability reform. For almost a decade now, an ad hoc Washington alliance of insurance companies and business groups has been battling in Congress to pass a uniform product-liability law that would reconcile conflicting state laws and limit damage awards. So far, the alliance has been stalled by consumer lobbies, labor groups, and trial lawyers. The latter have spent enormous sums lobbying to preserve the current tort system, in which lawyers can earn huge contingency fees.

Small business has been nearly invisible in the product-liability debate, positioning itself in the shadows of its giant allies and opponents. The NFIB failed to make up its mind about which side to support. Last May, the latest reform bill was killed by an 8-8 tie vote in the Senate Commerce Committee. As the largest small-business lobby, the NFIB might possibly have broken the deadlock with some skillful lobbying, but it didn't even take a position. The lobby was divided over a companion provision on worker's compensation insurance. In what some observers saw as a failure of leadership, the NFIB declared itself neutral.

"We're probably the only business group in town waiting it out right now," says Frank Toti, NFIB's lobbyist on liability-insurance issues. "At some point, we're going to have to come down on one side or the other." By then, it might be too late for NFIB members now doing business without any liability insurance.

Yet another complication is that no congressional committee has jurisdiction over insurance. So even if NFIB and other business groups do finally take an active role, they will have no obvious place to turn to on Capitol Hill.

Beyond the Beltway, the frustration of battered small-business owners over this political stalemate is becoming obvious. In August, delegates to the state-level White House Conference on Small Business, in Richmond, Va., shouted down a lawyer who took the floor to defend the present system of contingency-fee tort litigation. "It was pretty heated," says one participant of the verbal melee that ensued. Will such populist outbreaks among small-business owners help push a product-liability reform bill through Congress in 1986? "The problem," says one insurance company lobbyist, "is that a lot of congressmen are lawyers, too."