Creating an essential services regime requiring underwriters to cover certain businesses could have adverse ramifications, Insurance Council of Australia (ICA) CEO Andrew Hall has told a Parliamentary committee inquiry that’s looking at problems facing the coal industry.

Mr Hall said insurers, in considering the risks they cover, must take into account prudential guidance, the risk appetite of capital providers and market conditions.

“I think it would be very dangerous to be compelling financial services sectors to be providing either insurance, or lending or anything else, to certain sectors, over and above all the other factors they need to take into consideration,” he said today.

“It sounds like an easy fix, but I think it is far more complicated and could have deeper ramifications if it was applied too simplistically.”

Mr Hall was asked about having rules to prevent firms being denied cover on the basis of the industry in which they operate following an inquiry by the Australian Small Business and Family Enterprise Ombudsman.

That inquiry found insurance is an essential service for business and should not be denied on arbitrary “ethical” or other grounds. The ombudsman has said it is working on an essential services regime.

The Parliamentary Trade and Investment Growth Committee inquiry into the prudential regulation of investment in Australia’s export industries has followed up the proposal as it focuses on the coal industry’s problems accessing financial services amid pressures over climate change.

Mr Hall said the insurance industry was facing profitability challenges, reinsurance costs were rising, and on climate change insurers have been looking at how to balance the requirements of regulators, investors and the overall global insurance environment.

“Our industry is aligned with the regulatory guidelines on managing the financial risks of climate and we recognise that our regulators are keeping pace with the global standards,” he said. “We will continue to heed the guidance of our regulators and manage liability risks accordingly.”

Mr Hall said pricing and availability concerns were being raised across commercial insurance, driven particularly by professional indemnity and public liability issues.

“Underwriters are looking very carefully at risk factors that sit behind every sector and that is driving the current market environment,” he said. “Every individual insurer will have a different mix to their business and their portfolio.”

Mr Hall said there was scope for insurers to provide data and evidence where circumstances are making a sector unattractive for underwriting, as part of working with regulators and the government to “triage” issues.

“We can also work with regulators on what needs to be done if a different form of insurance needs to be created to provide security for a business operation,” he said.

ICA COO Kylie Macfarlane told the committee the prudential regulator did not provide guidance on any particular sector in the context of climate change but required insurers to consider and manage financial issues arising from physical, transition and liability risks.

“The fossil fuel industry obviously is one that is apparent in the climate policies of the majority of our members as they look at the transition to 2050 in line with the Paris agreement,” she said.

“Certainly, for the thermal coal industry, most particularly, it is the one industry that has specific transition requirements placed on it by many of our members at this point in time.”