Italian Businesses to Comply with Mandatory Catastrophe Insurance
According to Italian government sources, around half of Italian businesses are expected to purchase catastrophe insurance within a year of new legislation taking effect on March 31. The mandate aims to address the protection gap for businesses facing events like floods, earthquakes, and landslides.
The new law has been met with mixed reactions. Some businesses are reportedly unhappy with the compressed timeframe, while insurers have largely welcomed it, despite some concerns about claims processing following major catastrophes.
Legislation Details and Requirements
The legislation incorporates rules for a state-funded catastrophe reinsurance scheme, supported by SACE SpA, a financial group owned by the Italian Ministry of Economy and Finance. Although there are no prescribed penalties for non-compliance, businesses must have catastrophe coverage to be eligible for certain subsidies.
Insurance companies operating in Italy cannot refuse to sell catastrophe insurance to businesses if they have the capacity. Penalties for doing so could range from 100,000 to 500,000 euros. If an insurer exhausts its capacity, it must notify the Italian insurance regulator, IVASS, which will then publish the information on its website.
Agricultural businesses are exempt, as they already receive assistance and coverage from European Union schemes like the Common Agricultural Policy.
Current Insurance Landscape and Future Goals
Currently, almost all large Italian businesses have catastrophe insurance, but only about 5% of small and medium-sized enterprises are covered. Government sources estimate that achieving 100% penetration would require 10 billion euros of new capital in the sector, which they believe the insurance industry can provide. Insurance companies are prepared with products designed to comply with the new law, often as additions to existing coverage.
The decree specifies three types of catastrophes that must be insured against: floods, earthquakes, and landslides. Insurance contracts will include a 72-hour clause for event definition. Flooding is defined as the overflow of water, and the sediment it carries, from natural or artificial waterways and basins. This definition excludes flash floods caused by intense localized rainfall.
Impact of Recent Catastrophic Events
Italy experienced a series of catastrophic weather events in 2023, resulting in 6 billion euros in insured losses. While the Emilia-Romagna flooding in May 2023 was the costliest event in Italian history, with over 9 billion euros in economic losses, the insurance cost was only 495 million euros. The gap was due to damage primarily caused by rivers bursting their banks and landslides.
In contrast, severe convective storms that hit northern Italy in July 2023, causing wind, rain, and hail damage, triggered 4.8 billion euros in insured losses, as these were covered by existing policies.
Reinsurance Scheme and Economic Impact
The new legislation aims to bridge the protection gap for events like the Emilia-Romagna floods and significant earthquakes that affect much of the country. The goal, according to Italian government sources, is for private insurers, backed by the SACE reinsurance scheme, to pay claims faster than the government can provide relief after a catastrophe. This would enable businesses to resume operations sooner, reducing economic impacts.
Public-Private Reinsurance Scheme
SACE, wholly owned by the Italian Ministry of Economy and Finance, will provide a reinsurance scheme for policies covering the risks specified in the law. Within the scheme, SACE can assume up to 50% of an insurer’s risk. SACE has the capacity to provide 5 billion euros of reinsurance coverage, subject to annual adjustments based on assessments.
The law was initially drafted in late 2023, following a series of natural catastrophes in Italy. Originally set to take effect on December 31, 2024, the implementation was postponed to March 31, 2025.
