Europe’s latest nat cat reinsurance scheme and what it means for insurers

2024 marks a turning point for Italian companies, with a new Budget Law introducing the obligation to take out insurance against natural disasters and catastrophes occurring on national territory. By the end of this year, all Italian-domiciled businesses must be equipped with quake and flood insurance.

In the midst of a climate crisis with increasingly frequent extreme events – 2023 was a record cat loss year for Italy – the Italian government has taken measures to protect companies from the repercussions, which cost the country on average 3 billion euros a year. Under the new scheme, companies are mandated to cover assets including land, buildings, industrial facilities and equipment from risks like earthquakes, floods, landslides, and other natural disasters. According to a spokesperson for Ania, the Italian Association of Insurance Companies, the law has been introduced to address an insurance protection gap that is much higher in Italy than in other European countries.

Failure to comply risks denial of public contributions, subsidies and facilities, and insurance companies that don’t offer adequate policies risk fines from 100,000-500,000 euros. SACE, the Italian export credit agency has stepped in to support the industry and would be authorised to provide insurers and reinsurers with coverage for up to 50% of indemnities, under specific conditions and limitations.  

This is a positive development for the industry as the proposal aims to support Italy’s commercial property insurers in growing the overall market. Faced with an opportunity to substantially grow their business, Italian insurers must also grapple with the challenge of how to price these new risks. This obligatory coverage raises questions for accumulation risk and the necessity to create new products and policies.

The mandatory insurance cover will likely have to take into account the natural greater predisposition of certain areas compared to others to catastrophic events (ie earthquake zones), which could affect the risk pricing and premium.

For many businesses, insurers will have to offer policies and underwrite them, while looking at a whole new set of accumulations.

This invariably raises a number of questions:

• How can accumulations in large, risk-prone areas be managed?
• Which rules on the policies can be implemented and managed?
• Which mitigation measures should be part of the conditions of these policies, and how can the claims process be included?
• How will insurance companies manage and assess requests for coverage in relation to real estate located in earthquake-prone areas or frequently affected by natural disasters?
• What type reinsurance will need to be purchased?
• How will existing risk appetites, limits and tolerances by peril and region change?

These provisions are completely new in the legal framework of compulsory insurance cover, and have raised several questions amongst the real estate and insurance communities. However, equipped with the correct exposure management tools insurance companies can use this change in regulation to reinforce their exposure management practices to ensure they can fill the protection gap effectively.

To learn how Verisk are aiding and automating exposure management for insurers please get in touch below, or explore our exposure management tool Impact.