ITALY: Preparing for a mandatory cat insurance solution for real estate properties?

Following the 2016 earthquake sequences, ANIA - the Italian insurers' association is working to a project on household insurance for catastrophic risks. According to ANIA's President, Marina Bianca FARINA, implementing a solution for a better management of the cat risks is a must for Italia and should provide for a public-private partnership.

"The solution could consist in a compulsory insurance for all homeowners, providing for affordable prices thanks to the mutuality between the different areas of the territory," FARINA said. The project takes into consideration the assumption that the insurance market could provide coverage for most of the earthquake risk, "providing for the state intervention to cover the eventual peaks exceeding the system's capacity".

Yet, the project is still in its infancy, needing a large consultation with the public organisms and other stakeholders, as well as aligning with the national projects of buildings' seismic strengthening and citizen's education with regard to the cat risks. A good start point may be the buildings that will be reconstructed in the aftermath of the 2016 earthquakes or those consolidated within the national "Casa Italia" plan, also taking into consideration insurance costs among the tax incentives that will be granted.

The idea of introducing a form of mandatory home insurance is not for the first time on the table, although quite unpopular. "Compulsory insurance is the fastest way to reach the largest number of insured - has stated Carlo Coletta, Country manager for SWISS Re after the October earthquake in Central Italy, quoted by the Italian press - and the higher the number of the insured, the better the distribution of risk, the lower the premium you pay." In short, pay all to buy for less, with the forms of incentive that could help spread the tool, says Swiss Re's manager: "For as by eliminating or drastically reducing the tax of 22.25 per cent levied on insurance policies against natural disasters. Among other things, given the low prevalence of these hedges, the impact on revenue would be almost nil. First of all, however, need effective information campaign, because if the insurance continues to be perceived as a cost, incentives affect up to a certain point. "

During the past years, several attempts of introducing a mandatory home insurance scheme failed, the projects promoted by the government being rejected by the Parliament. Yet, almost 70% of Italy's housing stock fall in earthquake prone zones and require property insurance, particularly for natural catastrophe cover. Italian building insurance does not cover earthquake damage, unless specifically required by the insured. Prices are high and procedures quite complicated, the high value buildings needing a professional risks assessment. Therefore, there is a heavy reliance on post-disaster government intervention. According to Swiss Re, commercial earthquake insurance penetration stood at 0.07% in 2014. Similarly, residential earthquake insurance penetration stood at 0.01%. This was due to the government intervention and support after any natural disaster.

Italy, with its complicated geological setting, has a long history of strong earthquakes across the country, and in this area, the central Apennine region, in particular. Important earthquakes were quite numerous in the country's history. In fact, according to Standard & Poor's, Italy is the second-most-earthquake-prone country in Europe, after Turkey. In addition, the country is prone to catastrophes such as flooding, landslides, earthquakes and tornados.

One of the latest major earthquakes in central Italy hit the town of L'Aquila in 2009, killing over 300 people and destroying a vast area of the "old city" within medieval walls. According MUNICH Re, the total loss amounted to as much as EUR 2.5 billion, of which EUR 260 million insured losses. Recent statistical data published by AON Benfield show that, despite being the 7th largest global cat event in 2016, with economic losses of about USD 5 billion and 299 deaths, the Amatrice earthquake of August 24th has seen only USD 100 million in insured losses, demonstrating once again the low insurance coverage of the Italian homes.

"According to the ANIA 2016 estimates, less than 1.0% of the homes in Italy have private earthquake coverage. Despite living in one of the most naturally disaster prone countries in Europe, Italians are persistently underinsured for disasters due to the lack of the payments and length of time involved in earthquake claim settlements. Instead of buying insurance, Italians prefer to simply avoid earthquake zones when purchasing property," reports the latest Timetric whitepaper - published January 2017 -, "Italy: The impact of economic challenges on the Italian insurance market."

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