Insurance regulation changes to reflect the transition to a net-zero economy should be considered as part of reforms, with underwriters nervous about risk areas such as coal in Australia, a UK House of Lords committee inquiry has been told.

The committee, which is reviewing UK commercial insurance and reinsurance market regulation, this week heard from insurance law academics in a session on the legal and policy framework underpinning the London Market in the wake of Brexit.

The committee is exploring whether regulatory policy is “well-designed and proportionately applied”, the potential for further reform and the effects of regulation on customer interests and the market’s global competitiveness.

Queen Mary University of London Senior Lecturer in Insurance Law Franziska Arnold-Dwyer told the inquiry that in looking at regulators and the way in which they discharge their functions more weight should be put on whether it helps the transition to a net-zero economy.

“I would like to see Parliament considering amending the statutory objectives of the regulators, looking at competitiveness not just in terms of promoting growth to make the UK the biggest and the best, but in terms of sustainable growth,” she said.

University of Bristol Professor of Insurance and Commercial Law James Davey said there are risks in being a first mover and saying ‘we’re not going to insure coal’ and it has been a big issue in the UK and the US.

“I think they would find it easier to have regulatory pressure, so that they can say to shareholders, ‘This is limiting our ability to invest in this’, rather than having to make their own political decisions,” he told the hearing.

“There are a number of significant global risks: coal in Australia, several oil pipelines and the like, which UK insurers, Lloyd’s and other, have declared they are nervous about getting involved in.

“A regulatory steer is needed on that, and you probably need to bake that into the regulatory objectives. It is difficult for the regulator to do it.”

Dr Arnold-Dwyer said there have been calls for insurers to be incentivised in taking greener actions by rewarding them in their capital requirements, but a counter argument has been that greener projects can be higher risk, such as in cases where new technology is used.

The Industry and Regulators Committe inquiry, which held its first hearing last month, is accepting written submissions until Friday next week and is scheduled to hold further hearings on March 8 and 15.