Costs, impact, and challenges of the new disaster policy
The introduction of mandatory insurance for Italian businesses, set to take effect on March 31, 2025, marks a major shift in corporate risk management. Under the 2024 Budget Law, all small and medium-sized enterprises (SMEs)will be required to purchase disaster insurance to cover damages caused by earthquakes, floods, landslides, and other catastrophic events.
However, the cost of this coverage could significantly impact business budgets. Premiums will vary depending on the risk level of the company’s location, with annual costs reaching up to €12,000 in high-risk areas. For larger companies with multiple locations, this amount could exceed €30,000 or even €50,000 per year.
This legislative change presents challenges and concerns for businesses, especially those in disaster-prone areas. On the other hand, the new rule aims to ensure financial stability and faster recovery in case of natural calamities.
How much will SME disaster insurance cost?
The cost of the policy will be proportional to the level of risk in the company’s location. According to estimates from Unimpresa’s Research Center, the projected annual premiums for an SME with 500 square meters of premises and 15 employees are:
- €1,500 – €3,000 per year in low-risk zones, such as flat areas with no seismic or hydrogeological threats.
- €3,000 – €6,000 per year in medium-risk areas, where exposure to natural disasters is moderate.
- €6,000 – €12,000 per year in high-risk zones, prone to frequent earthquakes or floods.
For larger companies with multiple facilities, insurance costs could exceed €30,000 annually, and in some cases, even reach €50,000, depending on the scale of operations and geographical exposure.
Why is this policy mandatory?
The new regulation was introduced to shift financial responsibility from the government to businesses. Previously, companies affected by natural disasters could hope for extraordinary public compensation, but with this law, they will have to take direct responsibility for insuring their assets.
The goals of this policy include:
- Ensuring a faster business recovery after a disaster.
- Preventing bankruptcy for SMEs hit by catastrophic events.
- Reducing reliance on government emergency aid.
However, the mandate raises concerns about high costs, especially for small businesses and those located in high-risk regions.
No public funding for uninsured businesses
Companies that fail to comply with the insurance requirement will not be eligible for state grants or relief funds, even in the event of a disaster. This means that an uninsured business could face severe financial difficulties if hit by a catastrophe.
In addition to the direct losses caused by a disaster, an uninsured SME could experience:
- Revenue loss due to business interruption.
- Reconstruction expenses without immediate access to public funds.
- Difficulty obtaining credit, as banks may consider it a high-risk business.
Possible solutions: tax incentives and controlled rates
To ease the financial burden of this new regulation, Unimpresa has proposed three key measures:
- Tax incentives to help businesses afford insurance premiums.
- Regulated insurance rates for companies in high-risk areas.
- Government monitoring of the insurance market to prevent excessive pricing.
These solutions could make the policy more sustainable, ensuring that small businesses and those in high-risk zones are not disproportionately affected.
Is disaster insurance worth it?
Despite the costs, disaster insurance serves as a financial safety net, potentially preventing far greater financial losses.
For example, let’s consider an SME in a medium-risk area that pays an annual premium of €4,500. If a flood causes €500,000 in damages, and the insurance policy covers 85% of the losses (with a 15% deductible), the business would only need to pay €75,000 out of pocket instead of €500,000.
Without insurance, the company could face a financial disaster, potentially leading to permanent closure.
Conclusion: A necessary safeguard or an excessive burden?
The mandatory disaster insurance for SMEs introduces a significant responsibility shift but also provides greater protection against financial ruin. The biggest concern is the cost, which could be unaffordable for many small businesses.
If the government introduces tax incentives and controlled pricing, the insurance mandate could become a sustainable model, ensuring economic stability for Italian businesses in the face of natural disasters.
What do you think about this new law?
Is mandatory disaster insurance a necessary safeguard or an excessive burden for SMEs? Leave a comment below and share your thoughts!
