The insurance obligation, introduced by Article 1(101) et seq. of the so-called Budget Law 2024 (Italian Law No. 213 of 30 December 2023), will enter into force on 1 January 2025 and will affect companies with their registered office in Italy and foreign companies with a permanent establishment in Italy, in respect of direct damages suffered as a result of catastrophic events. Therefore, the ‘draft’ version of the implementing decree, prepared by the Ministry of Economic Affairs and Finance in agreement with the Ministry of Enterprise and Made in Italy (MIMIT), has been presented.
The decree will define the companies subject to the insurance obligation, the scope of the insurance cover and the natural disasters and catastrophic events to be insured. With regard to the latter, compulsory insurance against catastrophic risks covers damage to land and buildings, plant and machinery, industrial and commercial installations caused by earthquakes, landslides, floods and overflows.
Any subsequent phenomenon occurring within 72 hours of the initial event is considered as a single event and the measures taken by the competent authorities are of primary importance in determining the area actually affected by the disaster. On the other hand, damage similar to a natural catastrophe caused directly by human action is excluded from the scope of cover under the insurance against catastrophic risks.
Insurance premiums will be proportional to the risk, taking into account the characteristics of the territory and the vulnerability of the insured assets. Furthermore, within the limits of their risk tolerance, insurance companies will not be able to refuse to underwrite policies with companies under penalty of a fine of between one hundred thousand and five hundred thousand EUR (Article 1(106), Budget Law 2024). SACE S.p.A., as a company specialising in supporting Italian companies in the insurance and financial sector and a subsidiary of the Ministry of Economy and Finance, will be able to reinsure the risk assumed by insurance companies through the signing of special agreements at market conditions, up to at least 50% of the indemnities to be paid by insurers and reinsurers.
There are no direct sanctions for the company in the event of non-compliance. However, the lack of insurance against damage caused by natural disasters would make it more difficult for the individual company to obtain public contributions.
It is easy to understand the fears of insurance companies, which are unlikely to be able to quantify the risk precisely ex ante. Article 5 (Risk-taking capacity of insurance companies) of the draft implementing decree comes to the insurers’ rescue, stating that the companies’ commitment to underwriting is not unlimited, but that insurance companies must define their tolerance limit each year. Once this limit is reached, the company “shall cease to underwrite further risks throughout the country. IVASS and third parties must be immediately informed of this circumstance by publication on the company’s website”. The obligation to contract will affect insurance companies authorised to operate in Italy in branch 8 (“fire and natural forces”), even if they operate under the establishment or free provision of services regime. However, according to the same Article 5 of the implementing decree, the maximum risk-taking capacity will be defined by the insurance companies “in accordance with their overall solvency requirements”, with reference to the “overall risks” to be assumed with the insurance contracts (therefore, it would appear to be independent of the reference branch).
Article 7 (Limits of Indemnity) of the implementing decree establishes bands of insured sums for determining the limits of indemnity.
In conclusion, the market (insurance and otherwise) should welcome a regulatory intervention that is a new milestone in the Italian economic landscape, especially in the light of the recent flood disasters that affected families and businesses in Italy. Nevertheless, for insurance companies, these are risks that are not easily mutualised a priori and, above all, given the high sums involved, are not always easy to absorb. It will therefore be necessary to verify in practice whether the new compulsory insurance against catastrophic risks contains sufficient corrective measures to safeguard the fundamental objectives of the stability of individual companies and of the insurance system as a whole.
