Insurance

Natural disasters, policy obligation excluded for some smaller companies

The latest draft of the implementing decree also relaxes insurance commitments: they can be linked to solvency. Yes to overdrafts and ceilings

by Maurizio Hazan

7 September 2024

Polizze contro le catastrofi, pronte le nuove regole per le imprese

5' min read

5' min read

The obligation to insure the real estate of companies for natural catastrophe damage should not apply indiscriminately to all those already registered in the commercial register: smaller companies would be exempt. Although doubts remain as to their exact identification. In parallel, the obligation of non-life insurers to cover these risks would be graduated in relation to the solvency of each company. These are some of the most important issues raised by the latest draft of the DM implementing the insurance obligation envisaged by the last Budget Law (Law 213/2023, Article 1, paragraph 101 et seq.). The text of the draft now seems to be consolidated (barring currently unforeseeable snags). This latest version, as anticipated by Il Sole 24 Ore on 3 September, contains a 90-day extension that - given the probable impossibility of meeting the initial legal deadline (31 December 2024) - will probably be granted to companies to comply with the obligation.

In fact, the text arrives almost on the knife's edge, considering that it will be impossible for the insurance system to comply with the obligation immediately after the issuance of such a complex DM on such a delicate subject. Thus it is physiological that it will take a few months. In any case, the commendable effort of all the institutions involved to finalise the drafting of the Ministerial Decree should be noted.

The roofing issue

The delicacy of the subject derives from the magnitude of the risks to be covered, in a country with a historically fragile territory and now greatly affected by the effects of climate change. Hence the need to reach a sufficiently large insured population to allow the insurance and reinsurance market (in partnership with Sace) to take charge of catastrophic situations that could prove unsustainable, in the absence of sufficient compensation, including territorial compensation, between the risks covered.

It is therefore crucial, to this end, to understand how wide this audience is and, therefore, whether - without prejudice to the non-applicability of the rule to the agricultural sector - all Italian production companies are really obliged to cover themselves against catastrophic risks.

The audience

Law 213/2023 gave the idea of wanting to exclude smaller businesses (including small entrepreneurs, artisans and family businesses), concentrating the obligation on larger companies, which are probably better prepared to bear - at this early stage - the costs. Paragraph 101 in fact reserves the obligation only for companies 'required to be registered in the commercial register pursuant to Article 2188 of the Civil Code'.

The final illustrative report of the law (parliamentary dossier of 31 January 2024) seems to comply with this, recalling that 'small entrepreneurs, i.e. direct cultivators of land, artisans, small traders and those exercising a professional activity organised predominantly with their own labour and that of family members (2083) are not subject to the obligation of registration in the business register'.

In fact, it is well known that since the end of the 1990s, the business registry has been enriched with special sections, to which even minor production entities are registered. An entry that is certainly depotentiated, in terms of its effects: only the entry in the ordinary section has constitutive value or, in any case, enforceability against third parties (declaratory), while that in the special section is mere publicity news.

It can therefore be assumed that, sinning by a certain superficiality of exposition, the law has referred to (only) those companies required to register in the ordinary section only (in relation to which registration is obligatory due to the essential nature of its purpose and legal consequences) and not instead to the special sections. In this sense, there is also another not insignificant piece of legislation: that on the objective perimeter of the insurance obligation, referring to assets specifically identified with a balance sheet rule (Article 2424 of the Civil Code) that does not apply to small entrepreneurs and artisans.

The previous drafts of the Ministerial Decree sought (understandably) to push for an extensive interpretation, broadening the scope: not only companies required to be registered in the companies register pursuant to Article 2188, but also those 'in any event registered in the aforementioned register'. The new version, aware of a possible excess of delegated powers, goes back to the origin, limiting itself to quoting verbatim the formula used in the law.

The interpretative problem linked to the plurality of sections of the Register therefore remains open, although the indices prevailing to date point to the exclusion of the obligation for companies registered in special sections.

The insurance obligation

In order to make the system sustainable, the latest draft of the Ministerial Decree partially tempers (compared to the law) the scope of the insurance companies' obligation to underwrite catastrophe policies on companies' real estate. In fact, it effectively introduces a regulation (Article 5 of the draft) that conditions a given insurance company's obligation to contract on its actual underwriting capacity (and its solvency requirements).

Uncovered, capped and large enterprises

Again with regard to sustainability, the Ministerial Decree introduces the possibility of limiting the scope of the guarantee with overdrafts or ceilings (indemnity limits) graduated according to the production size of the insured. Up to the point of allowing large companies (more than 500 employees or a turnover in excess of Euro 150 million) and those that in any case have an insured sum in excess of Euro 30 million the possibility of freely negotiating the percentage of indemnifiable damage that remains their responsibility. This through an equally free fixing of indemnity limits or ceilings.

This is a not insignificant novelty, which essentially seems to endorse a sort of right to self-insurance in favour of companies of such a size that they can be considered capable of assuming a large part of the risk themselves. This formula, however, is not envisaged by the law, which, on the contrary, seemed to be aimed at guaranteeing a substantially full level of insurance cover, admitting only the possibility of discoveries and deductibles to an extent not exceeding 15% of the damage (paragraph 104).

The 90-day extension

The 90-day extension (from the day of entry into force of the DM), will concern the new generation contracts, which will therefore have to comply with the contents of the DM (subject, we would say, to the possibility, and perhaps the advisability, of voluntarily and optionally supplementing their coverage with guarantees outside the perimeter of the law).

For policies in force on the expiry date of the extension, the latest draft of the DM states that the adjustment does not concern the policy texts but, more generally, the legal requirements. This could allow companies to choose not to modify these texts, limiting themselves to proposing supplementary appendices to policyholders that would in any case ensure the adjustment by filling any previous gaps in coverage. All this without prejudice to the need to respect the requirement of proportionality of the premium, given the necessary respect for mutuality.

The Sace Convention

The agreement regulating the reinsurance terms between Sace and the individual insurance companies, which will make use of Sace's strong public support provided by the law, to cover up to 50% of the indemnities due, within the limits of certain annual plafonds, completes the implementation.