Beginning next April, Italian businesses will face a new mandate: they must secure insurance against natural disasters.
This requirement has elicited a mix of reactions, especially among companies concerned about affordability and practicality.
Impact on Small and Medium-sized Enterprises
In Italy, small and medium-sized enterprises (SMEs) form the backbone of the economy.
These businesses have historically depended on government aid to cope with the rising incidence of climate-related calamities.
For instance, Emilia-Romagna, a northern region, suffered catastrophic flooding in May 2023, resulting in damages exceeding €8.5 billion (approximately $8.93 billion).
As Italy grapples with significant public debt, the government aims to lessen its dependence on state funding, which could lead to considerable savings for taxpayers.
Legislative Requirements and Insurance Market
The upcoming legislation will mandate that businesses insure a range of assets, such as buildings, machinery, and land.
An environmental research institute known as ISPRA highlights that around 94% of Italian municipalities are at risk from landslides, floods, or coastal erosion.
Currently, Italy spends about €4-5 billion each year on compensating victims of natural disasters, a figure that represents roughly 0.25% of the nation’s GDP.
While the insurance sector is gradually expanding—this year seeing insured assets impacted by disasters reach a record €6 billion (around $6.30 billion)—only about 5% of Italian enterprises have adequate coverage.
Experts stress the importance of channeling savings into preventative strategies and improving infrastructure.
Most businesses express cautious support for the new law but remain apprehensive about the complexity and costs associated with the insurance policies that will be required.
Challenges and Opportunities Ahead
Voices from the SME sector call for insurance solutions that are customized to reflect individual business risks, in contrast to generic approaches that seem primarily designed to boost insurers’ profitability.
Despite these reservations, other business owners welcome the stability that insurance provides, viewing it as a more reliable option compared to the often slow and cumbersome state compensation process.
Advocates for businesses emphasize the need for transparency in this transition, suggesting the establishment of a centralized platform to compare insurance pricing.
Analysts, however, warn that enforcing compliance may be challenging.
Without effective penalties, many businesses might opt out, potentially undermining risk-sharing dynamics and driving up insurance premiums.
Large insurance firms could gain a competitive advantage, thanks to their ability to spread risk across a wider client base and geographical regions.
Currently, five major insurers control about 70% of Italy’s natural disaster insurance market.
Notably, the proportion of insured losses to total economic losses in Italy stands at 69%—substantially higher than in France (20%) and Germany (27%).
To support this new regime, the state will act as a reinsurer, allowing insurance providers to leverage guarantees from SACE, a public entity that offers both insurance and advisory services, to mitigate some of their risks.
Business owners who have previously faced the fallout of disasters, like a carpenter from Liguria, express optimism about the new regulations.
Many find comfort in the prospect of adequate coverage as they look to rebuild and recover after an incident.
Source: Insurancejournal.com
