On February 27, 2025, the NAT CAT Implementing Decree (Legislative Decree No. 25G00027) was published in the Official Gazette, establishing the long-awaited detailed rules concerning the obligation for businesses to subscribe to insurance policies covering risks arising from catastrophic events. This measure is part of the provisions set forth in the 2024 Budget Law, specifically in Article 1, paragraphs 101-111, with the aim of ensuring greater economic security for businesses in the face of major natural events.

Let’s examine the key innovations introduced by the aforementioned regulations, now that the regulatory framework has been clearly established.

Who is Affected?

The obligation to subscribe to insurance policies covering damages arising from natural disasters is directed towards:

• All enterprises with their legal headquarters or a permanent establishment in Italy, regardless of their sector or size.
• Micro, small, medium, and large enterprises operating in the industrial, commercial, or services sectors.
• Agricultural businesses, which are exempt from this obligation, as they benefit from specific forms of assistance through a national fund, as per Law 234/2021.

What do CatNat Policies Cover?

CatNat policies must cover the damages sustained by land, buildings, plants, and industrial and commercial equipment regularly recorded in the financial statements. The risks to be insured include major natural disasters, such as earthquakes, floods, landslides, inundations, and river overflows, all of which could cause substantial disruption to business operations. This intervention aims to mitigate the economic risks associated with such catastrophic events, thereby enhancing the resilience of Italian businesses.

Deadlines and Adjustments

The deadline for compliance, initially set for December 31, 2024, has been extended to March 31, 2025, through the Milleproroghe Law of February 2025. This extension affords insurance companies and policyholders a period to adjust.

The recently issued decree provides clarity on several critical points, such as the identification of catastrophic events, the implementation of insurance policies, and the criteria for determining compensation.

Main Provisions of the Implementing Decree

1. Definition of Catastrophic and Natural Events:
   The decree provides detailed definitions of flood, inundation, river overflow, earthquake, and landslide, with precise temporal criteria
   1. Flood, Inundation, and River Overflow: The outflow of water from rivers, natural or artificial basins, or drainage networks, induced by natural weather phenomena, which may also carry sediments. These shall be considered a single event if they occur within 72 hours from the first occurrence.
   2. Earthquake: Sudden movements of the Earth's crust due to endogenous factors. Damage is covered if the affected area is identified by competent authorities and registered by the National Seismic Network. Tremors occurring within 72 hours of the initial event are regarded as part of the same claim.
   3. Landslide: A rapid displacement of soil, rock, or debris along a slope, caused by gravitational forces, even in the absence of water infiltration. Events within 72 hours of the first occurrence are considered a single event.

2. Periodic Premium Determination and Adjustment:
   The decree clarifies the Bonus/Malus mechanism for this type of insurance product. Premiums will be determined:

• 1. based on the risk and vulnerability of the insured assets, subject to periodic updates to reflect changes in economic conditions and risk exposure.
• 2. considering the preventive measures adopted by businesses to mitigate such risks.

3. Risk-Assumption Capacity of Insurance Companies:
   Insurance companies must define their risk appetite and establish tolerance limits, updating these parameters annually.

• 1. Once the tolerance thresholds are exceeded, insurance companies must cease assuming new risks and notify IVASS.
• 2. The accurate evaluation of this risk-assumption capacity will be crucial for insurance companies in determining their limits for policy subscriptions in accordance with the legal obligations.

4. Amount of Compensable Damage for the Insured:

• For insured sums up to 30 million euros, the deductible for the insured will not exceed 15% of the compensable damage.
• For sums exceeding 30 million euros, the percentage of compensable damage will be subject to negotiation.

5. Indemnity Limits or Caps:

• For insured sums up to 1 million euros, the indemnity limit shall be equal to the insured amount.
• For sums between 1 million and 30 million euros, the indemnity limit must be no lower than 70% of the insured sum.
• For sums exceeding 30 million euros, the indemnity limit is subject to negotiation.

6. Transparency of the Insurance Offer:
   Insurance companies are mandated to publish the policy documents and conditions on their websites to ensure transparency and foster a competitive environment.

7. Reinsurance Operation by SACE S.p.A.:

• Insurance companies may rely on SACE S.p.A. to provide coverage, transferring risks from the entire portfolio of policies covering catastrophic damages.
• Policies not in compliance with the legal provisions will be excluded from this coverage.

8. Approval of the Agreement Framework:

• The agreement framework to which insurance companies may adhere to obtain SACE S.p.A. coverage has been approved. T
• The issuance of coverage will depend on adherence to the framework by the stipulated deadline.

9. Transitional and Referral Provisions:

• Insurance policies must be adjusted to comply with the legal provisions within 30 days from the decree's publication. Given the decree's publication date of February 27, and the obligation for businesses to subscribe to policies by March 31, 2025, this provision appears somewhat redundant, as companies should be prepared with policy texts that are already compliant with the requirements well in advance of March 31.
• Existing policies will be subject to adjustments starting from the first available renewal. This provision suggests that businesses with property coverage, including coverage for natural disasters, should consult with their advisors and risk management teams to ensure the adequacy of existing coverage.
• Companies must verify the adequacy of their tariff proposals within 30 days following a catastrophic event.
• For matters not explicitly covered by the decree, reference should be made to the Civil Code and IVASS regulations.

The NAT CAT Implementing Decree represents a significant advancement in safeguarding Italian businesses against the risks posed by catastrophic events. The foundational principle behind this new legislation remains focused on the collaboration between public and private entities regarding certain catastrophic risks (it should be noted that the decree only covers "some" events, with many other equally catastrophic occurrences left undefined in the implementing provisions). By providing clear definitions of covered events, determining premiums based on risk and vulnerability, and regulating the risk-assumption capacity of insurers, the decree strives to create a more robust and transparent system.

Insurance companies are therefore urged to comply by March 31, 2025, by making the necessary adjustments to their contracts and tariffs. This decree not only strengthens the economic protection of businesses but also fosters greater awareness and preparedness in managing the risks associated with catastrophic events.