Company buildings

Mandatory catastrophic policies without effective sanctions: mutuality at risk

The functioning of the model requires that the obligors insure themselves. Limits of coverage and supports for the sustainability of public indemnities

by Maurizio Hazan

19 September 2024

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3' min read

Key points

The Problem of Sustainability and the Civil Code
Sace's role and the convention
attempts to lighten the burden
Limited sanctions for uninsured

3' min read

The compulsory insurance of risks related to natural catastrophes for companies' real estate, envisaged by law 213/2023, is approaching: it will come into force on 1 January 2025 (barring possible extensions) and the implementing decree is almost ready. But doubts remain about sustainability: the obligation concerns risks with a very significant public impact and not easily insurable, so in order to guarantee the indemnities it is necessary, among other things, to limit evasion. However, the law does not provide for sanctions for those who do not insure themselves. A gap that can only be filled indirectly in the case of large companies.

The Problem of Sustainability and the Civil Code

Natural catastrophes involve serious risks, the destructive effects of which are further aggravated by their simultaneous spread. This does not fit in well with the rules of mutualistic compensation between accident-insured and virtuous insured on which insurance technology is based.

So it seems no coincidence that the Civil Code expresses a substantial disfavour on insurance cover for catastrophes: Article 1912 states that "unless otherwise agreed, the insurer is not obliged for damage caused by earthquakes, war, insurrection or popular uprisings". Which means that those phenomena are not normally insurable, unless a company wants to do so anyway (but with adequate solvency guarantees).

The Role of Sace and the Convention

It is well explained, therefore, why the model to be established, based even on an obligation to contract on the part of companies, also requires the co-partnership between public support and the private insurance market. Article 1, paragraph 108 of Law 213/2023 provided for the reinsurance intervention of Sace, which is authorised to grant insurers and reinsurers (at market conditions and against a State guarantee on first demand and without recourse) cover of up to 50%, within an overall limit of EUR 5 billion for 2024 (and variable over the following two years).

This reinsurance intervention (on a proportional basis) is governed by an agreement with Sace, the outline of which is annexed to the draft implementing DM. It governs, among other things, rules for adherence by companies, obligations and rights of the reinsurer and reinsured, cases not covered, methods for calculating the reinsurance premium, rights of subrogation, inspection and verification by the reinsurer, and the settlement of accounts between the parties.

attempts to ease burdens

There remains, however, the need to have an insured audience as broad and transversal as possible, in order to better mutualise weights and risks. Hence the choice of the obligation to insure, which could have been general and instead for the time being concerns only real estate for productive use (and perhaps not even all), although onefeels that this is only the first step. It was therefore intended, at this first stage, that the world of work and production should be protected, probably believing that the cost of the new covers can be absorbed into business expenses better than a citizen can do in his own, not always prosperous, family economy.

Amatrice, 8 anni dal violento terremoto

On the other hand, an attempt has been made - also in the outline of the implementing DM - to lighten the weight of the covers:.

- not covering damages from loss of productivity (business interruption) or related to third party liability and introducing other exclusions or limitations;.

- by limiting the obligation to contract imposed on (only) companies that previously insured that type of event, which will have to accept clients only up to the limits of the underwriting capacity that each must have established in advance, after which they will no longer be required to issue policies;

- allowing thebigger companies and in any case of insured values exceeding 30 million euro to freely negotiate the percentage of indemnifiable damage that remains the responsibility of the insured (a kind of risk self-insurance, which is actually not provided for by law).

So the obligation to contract is weakened, but robust fines remain for its violation or avoidance.

Limited sanctions for uninsured

There are no sanctions for companies required to take out insurance: at most, they may lose the right to contributions, subsidies or public financial facilities, granted not only during catastrophic events (Law 213/2023, Article 1, paragraph 102). In addition, in more structured companies, the liability of top management towards shareholders could be triggered (as may be the case under Article 2392 of the Civil Code for corporations).

One wonders whether there is thus sufficient desufficient strength for effective compliance with the obligation. The doubt is that certain realities, in certain territorial areas and in the absence of more concrete sanction risks, end up not having insurance. Which would call into question the mutualist basis. .