Italian Budget Law on mandatory insurance against catastrophic events raises several questions
Law No. 213 of 30 December 20231 (the Budget Law) has introduced a new obligation for companies with registered offices in Italy and for companies with registered offices abroad with a permanent establishment in Italy. As of 31 December 2024, these companies will have to take out insurance to cover damage to assets2 caused by natural disasters and catastrophic events occurring on national territory.3
These provisions, which are totally new in the legal framework of compulsory insurance cover, are supplemented by a series of implementing decrees aimed at defining further implementation and operating procedures. The Italian Insurance Regulatory Authority (IVASS) might further clarify the scope of application of the provisions, especially with reference to the characteristics of the insurance covers, including deductibles and uncovered amounts.
Who has to take out insurance and on which property?
Companies with a registered office in Italy and the branch offices of foreign companies required to be registered in the Italian commercial register have to take out insurance cover, pursuant to Article 2188 of the Civil Code.
The assets subject to compulsory coverage include land and buildings, facilities and machinery and industrial and commercial equipment. The insurance obligation doesn’t apply to those buildings encumbered by building abuse or constructed without the required authorisations or burdened by abuse arising after the date of construction.
On 27 February 2024, Law No. 17/2024 converting Law-Decree No. 212 of 29 December 2023 was published in the Italian Official Gazette. The law stipulates that those who have taken advantage of the tax benefits of the “superbonus”4, in relation to expenses for works started after 30 December 2023, also have to take out insurance to cover damages caused to their properties – including residential properties – by natural disasters and catastrophic events, all within one year from the conclusion of the works benefiting from the “superbonus”.
Beneficiaries of the “superbonus” may find themselves in a delicate position. While they’re entitled to special tax benefits, they will now have to take out additional insurance policies, an additional financial burden for them.
However, we’re still waiting for the Minister of the Economy and Finance and the Minister of Enterprise and Made in Italy to issue decrees to establish the detailed terms and conditions for implementing the provision.
Defining calamitous and catastrophic events
Paragraph 101 of Article 1 of the Budget Law defines calamitous and catastrophic events as those caused by earthquakes, floods, landslides, and inundations. However, paragraph 105 of Article 1 of the Law does not exclude that the procedures for identifying calamitous and catastrophic events eligible for compensation may also be referred to the implementing decrees to be issued by the Ministries of Economy and Finance and of Business and Made in Italy. Currently there are no indications in this regard.
The parties required to provide insurance cover and the cover offered by SACE
Insurance undertakings will be able to offer insurance cover by directly assuming the entire risk or in co-insurance, including through consortia, which nevertheless must be registered and approved by IVASS. Currently, paragraph 104 of the Budget Law states that the insurance cover can provide for a possible overdraft or deductible of no more than 15% of the loss. But IVASS could revise this figure later.
Insurance companies will not be able to refuse to underwrite the risk or circumvent the obligation to underwrite. Doing so will be punishable with a fine from EUR100,000 to EUR500,000.
SACE will guarantee the insurance coverage offered by insurance undertakings. SACE is authorised to grant, at market conditions, private insurers and reinsurers, a reinsurance coverage of up to 50% of the indemnities paid, for an amount not exceeding EUR5,000 million for 2024. On the cover offered by SACE, a first demand State guarantee is granted as of right.
Real Estate
These provisions raise a number of questions. 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? And will the obligation to take out the insurance policies in question affect – and to what extent – the investment choices of national and international operators in the real estate sector in Italy?
It’s not clear whether the insurance cover, like with civil motor liability insurance, will 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 the premium.
Another element the legislator or the competent Ministries need to clarify when issuing the expected implementing decrees pertains to real estate property “encumbered by building abuse or constructed in the absence of the required authorisations or burdened by abuse arising after the date of construction.” The provisions specify that the insurance obligations don’t apply to this type of real estate. This leaves room for uncertainty as to the terms and procedures for demonstrating whether or not the properties are up to standards or as to any action to be taken, by the owner, once the building abuse has been ascertained.
So will owners of real estate have to carry out preventive inspections on the properties they own – at their own care and expense – to obtain sworn certifications of building conformity? Pending the implementing decrees, it’s not clear whether owners of the properties in question will have to submit building compliance certifications to insurance companies to get relevant insurance coverage. At the moment this is only a theoretical hypothesis, but if the provision relating to the non-applicability of the rule in question to buildings with building abuses is to be given full meaning, it will be necessary to provide for a complete and rational discipline, hopefully without burdening property owners with further obligations and expenses. Otherwise, the rules in question could have a negative impact on property investment valuations, also in terms of cost allocation between sellers/buyers and landlords/tenants.
The legislator, through specific interventions on the provisions, or the competent Ministries when issuing the implementing decrees, should provide clear guidelines on insurance coverage for real estate affected by building abuses. The lack of clarification could open the way to litigation and legal uncertainty, potentially affecting the real estate market and the insurance industry.
1State budget for the financial year 2024 and multi-year budget for the three-year period 2024-2026
2The relevant assets are listed in Article 2424, paragraph 1, letter B-II, numbers 1), 2) and 3) of the Civil Code
3Article 1, paragraphs 101-112 of the Budget Law
4See Article 119, paragraph 8-ter, Law-Decree No. 34/2020
