Insurers face heightened scrutiny following a declaration from the Organisation for Economic Co-operation and Development (OECD) that the industry was partially responsible for the downfall of the global financial system.

The Australian Prudential Regulation Authority (APRA) has already foreshadowed tough new regulatory capital standards through the 2009 Basel proposals on regulatory capital requirements.

It said last month that the definition of “eligible capital” for insurers is being considered as part of a broader review of general and life insurance capital standards.

The OECD says surveillance of insurers must increase, and renewed calls for enhanced “cross-border supervision and the exchange of information among relevant authorities”.

The Paris-based organisation’s call for tighter international insurance regulation follows moves by the International Association of Insurance Supervisors (IAIS) to improve supervision and the monitoring of associated risks through a global framework.

The OECD says while insurers were mostly “bystanders” to the global financial crisis, they did play a role by issuing financial insurance products on more complex investments allowing the latter to be deemed safe by credit ratings agencies.

“The traditional life and general insurance sectors have largely been bystanders in the crisis, and have been impacted by its knock-on effects, such as the fall in equity markets, declines in interest rates, economic slowdown and decline in credit quality, and, in some cases, counterparty exposure to failed financial institutions,” it says in a new report.

APRA is a member of the international Basel Committee on Banking Supervision that has proposed improved global capital and liquidity requirements in the wake of the global downturn.