In 2008, the insurance industry fared pretty well despite the ailing economy. Even though American International Group (AIG) had to be bailed out by the federal government for a the fact is that it had nothing to do with its insurance subsidiaries, which have been performing fairly well, according to the various rating organizations.

Federal intervention in the insurance industry is one of the key outlooks of insurance companies for this year. Many agents associations believe that supporters of tougher insurance regulation will attempt to bring about federal supremacy over states in the regulation of the industry. It is widely believed that proponents of federal regulation of insurance are using the current financial services crisis to further their cause.

Some advocates of federal regulation of insurance are pointing to the downturn of the mortgage sector to justify the complete regulation of insurance industry. In reality, the insurance sector has largely been insulated from the worst of the financial problems.

In fact, the economic crisis proves that insurance should not be brought into the federal system which that failed so miserably in its supervision of banking and securities sector. The National Conference of Insurance Legislators (NCOIL) suggests that the state insurance regulatory system should serve as a model for reforms to the federal regulatory system for banks and securities, not vice-versa.

Currently, there is no single Federal agency that is tasked to the monitor the insurance industry as a whole. The industry relies on the individual state regulatory guidelines of their respective states.

However, theAIG situation should be a wake up call for companies to practice enterprise risk management (ERM). Many companies are being hurt by risks they’ve made for another business unit. Diversification is not necessarily a good thing especially if management is not aware of how different elements of a corporation affect each other.

Prospects are not grim for the insurance industry in 2009 as there may be a possible turnaround. The crisis in the financial services market has made all the headlines, but there were unexpected events Hurricanes Ike and Gustav. Ike was the third largest insurance event ever with tens of billions in property damage alone. The property insurance market will make headway considerably in 2009. Life, casualty, and other insurance markets are expected to grow slightly but insurance buyers should prepare themselves for a period of uncertainty and volatility in the coming months.