ROME (Reuters) – Italian companies are preparing to comply with the obligation, costly and complex for many of them, to take out insurance against natural disasters from next April.

Many small and medium-sized businesses, which constitute the backbone of the Italian economic fabric, have until now relied on government support to cope with natural disasters whose frequency is increasing with global warming.

The region of Emilia-Romagna, in northern Italy, for example, bears the scars of climate change, the first flood in a series of four since May 2023 having alone caused 8.5 billion euros of damage.

Italy has adopted a new law making insurance against natural disasters compulsory to end dependence on the State while 94% of cities are exposed to the risks of landslides, floods or coastal erosion , according to the Institute for Environmental Protection and Research (ISPRA).

The peninsula spends around 4 to 5 billion euros per year on compensation for natural disasters, according to figures from the transalpine insurance regulator (IVASS), or almost 0.25% of gross domestic product. At the same time, only 5% of Italian companies are covered, according to the National Association of Insurance Companies (Ania).

But businesses fear that insurance policies will be expensive and complex to put in place.

“We want these insurance policies to be tailored to the needs of businesses to reflect the scale of risks, not a one-size-fits-all solution to increase insurers’ revenues,” said Stefano Valvason, chief executive of API, a association of small and medium-sized businesses.

The law could provide an advantage to larger insurers through a greater pooling base across more clients and regions, said Stefano Frazzoni, senior partner at business consultancy Prometeia, as five insurance groups hold 70 of the natural disaster coverage market in Italy.

Within the framework of the law, the State will act as reinsurer of insurance companies through Sace, a public group controlled by the Ministry of Economy and Finance and specialized in supporting businesses and the national economic system.

The protection gap in the country is notable: the ratio between insured losses and total economic losses in Italy is 69%, compared to 20% in France and 27% in Germany, according to data from Swiss reinsurer Swiss Re.

(Reporting by Alberto Chiumento and Andrea Mandala with Romolo Tosiani; Bertrand De Meyer, edited by Sophie Louet)

Copyright © 2024 Thomson Reuters