What can we do if our auto insurer decided to settle with a person that is suing my wife, and they now refuse to provide legal counsel?

You say that "funds are exhausted." If that by that you mean that they have paid up to the policy limit, then they have discharged their responsibility. A insurer will provide legal counsel and representation as long as they are defending a suit. However, they only have to defend up to the limit of the policy. If they have settled for the full policy amount, that takes care of the insurer's responsibility. At that point, you will have to retain your own attorney.