Ministerial Decree No. 18/2025 on the obligation to insure catastrophic risks

On 27 February 2025, Ministerial Decree No. 18/2025 was published in the Official Gazette containing the "implementation modalities of insurance schemes for catastrophic risks" set by the Budget Law No. 213/2023, which introduced under Article 1, paragraphs 101 to 112, the obligation to take out insurance contracts to cover land and buildings, plant and machinery, industrial and commercial equipment (as better defined by the decree) from five categories of risks: earthquakes, floods, landslides, inundations and overflow.

This obligation, as confirmed in Article 1 of the implementing decree under the 'Definitions and Scope', is incumbent on companies with their registered office in Italy and on companies with their registered office abroad with a permanent establishment in Italy, which are required to be registered in the Register of Companies, with the express exclusion of agricultural companies and companies whose properties are abusive.

The legislator therefore establishes a twofold obligations, for companies to have to take out a policy to cover natural disasters defined in Article 3 of the decree as “floods, inundations and overflows; earthquakes; landslides” and for insurance companies to offer insurance cover for “damage to fixed assets directly caused by calamitous events as defined in Article 3 of the decree” (Article 1(4)(d) of the decree).

The deadlines to comply with the decree are very tight ("within and no later than thirty days from the date of publication of this decree" pursuant to Article 11(1)), i.e., no later than 31 March, with a reduction of the transitional regime for insurance companies from the initial 90 days to the shorter and more stringent deadline of 30 days.

Despite the reduced timeframe, the decree clarifies the terms for determining premiums and the risk-taking capacity of insurance companies.

In fact, the legislator has confirmed the provisions on the quantification of the insurance premium, providing that the calculation of the same shall be determined in “proportion” to the calamitous events susceptible to indemnification, taking into account the location of the risk on the territory and the vulnerability of the insured assets as well as providing for the obligation to periodically update the premiums in compliance with the principle of mutuality (Article 4).

In addition, insurance undertakings subject to the “duty to insure” are better identified in the undertakings authorized to conduct business in Italy under “Ramo 8”, operating under the right of establishment or the freedom of services. The latter will be required to define, with reference to the overall risks to be taken, their own risk propensity consistent with their “overall solvency requirements, setting the relevant risk tolerance limits” (Article 5). These tolerance limits will have to be updated at least once per year with respect to the entire portfolio of risks acquired (taking into account the possible transfer of the risk to SACE S.p.A.) and, once this limit is reached, insurance companies will no longer be subject to any obligation to take on further risks within the Italian territory, except for immediately notifying IVASS and third parties by means of publication on their website.

Having therefore clarified the obligations introduced with this decree and the scope of its application, the legislator has also determined new directives concerning the calculation of the amount of compensable damages, policy limits and indemnity limits, distinguishing between the different risks as follows:

-          up to EUR 1 million: limit of indemnity equal to the sum insured;

-          1 million to 30 million: excess not exceeding 15% of the compensable damage, indemnity limit not less than 70% of the insured amount;

-          exceeding 30 million: the determination of the compensable damage, coverage limits and indemnity limits are left to the free negotiation of the parties;

all with certain specifications: i) for land, cover is provided as primary cover up to the limit of indemnity in proportion to the surface area of the insured land; ii) in the case of an insurance contract taken out in collective form, the risk classes identified will correspond to the application of differentiated limits of indemnity according to the different coverage requirements.

Given the potential risk actually imposed on insurance companies, the legislator introduced a public-private partnership whereby SACE S.p.A. has the right to take on, in the form of reinsurance, up to 50% of the companies' risks, but no more than EUR 5 billion per year in the three-year period 2024-2026 (Article 1, paragraph 108, of Budget Law No. 213/2023).

This decree further clarifies that "in the event that insurance companies avail themselves of the cover of SACE S.p.A., they transfer to SACE S.p.A. the risks arising from the entire portfolio of policies covering catastrophe losses, or the risks arising from the entire portfolio of policies covering catastrophe losses net of the policies underwritten with large enterprises" (Article 9), with the express exclusion of the policies already in force at the decree will be effective benefiting from the transitional adjustment regime.

Finally, it should be noted that, for catastrophe policies that are already in force, the legislator has provided that, with respect to such policies, the entry into force of this decree will commence from the first renewal or the first useful receipt of the latter (Article 11(2)).

Any further clarification or regulation of what is not expressly provided for in the decree may be referred to the relevant provisions in the Italian Civil Code and IVASS regulations.