By the Italian Ministry of Finance

Italy has introduced a pioneering public–private insurance scheme mandating business coverage for natural catastrophes, aiming to close its 78% protection gap and set a model for international disaster risk finance.

Italy is one of Europe's most hazard-exposed countries, where earthquakes, floods, and landslides pose persistent risks and where the economy relies heavily on small and medium-sized enterprises (SMEs), many of which lack adequate insurance protection. For example, when devastating floods struck Emilia Romagna in 2023, the damage bill reached billions of euros, much of it uninsured. The disaster underscored a growing challenge for Italy and many countries worldwide: natural catastrophes are becoming more frequent and costly, while insurance coverage remains insufficient.

Today, an estimated 78% of potential losses from natural disasters in Italy are uninsured, leaving businesses vulnerable, slowing recovery, and increasing pressure on public finances.

Recognizing the economic and fiscal costs of this protection gap, Italy has introduced an ambitious reform to promote risk prevention and management, reduce fiscal exposure, and encourage public-private cooperation, while improving long-term budget sustainability.

A Landmark Reform

In late 2023, Italy introduced a groundbreaking measure through its 2024 Budget Law. The legislation requires all registered companies operating in Italy, except for agricultural businesses, as well as foreign ones with a permanent establishment in Italy, to insure land, building, plants, machinery, and industrial and commercial equipment for the reconstruction value, and the restoration and replacement costs, against three major natural hazards: earthquakes, floods, and landslides. At the same time, insurers must offer this coverage with risk-based premiums that reflect location, vulnerability, and the prevention measures adopted, to incentivize firms to invest in adaptation and resilience while ensuring that coverage is available across the market. Insurance premiums are updated periodically to reflect the economic conditions and the specific risk of the companies.

Implementation has been phased in gradually. Large companies were the first asked to comply by March 31, 2025, while small and micro enterprises are joining the scheme by December 31, 2025. The gradual rollout reflects the government's objective of expanding protection while allowing businesses and insurers time to adapt.

Although residential property and infrastructure are not yet included, the reform marks a major shift in how disaster risk is shared and managed across the economy.

Sharing Risk Through Public–Private Partnership

At the heart of the initiative is an innovative public–private partnership designed to make catastrophe insurance both viable and sustainable.

SACE, Italy's state-owned export credit agency, plays a central role as a reinsurer of last resort. SACE can cover up to 50% of insurers’ liabilities through a proportional reinsurance model, providing confidence that even large-scale events can be covered without destabilizing the market.

This mechanism allows private insurers to underwrite risks that might otherwise be difficult or too costly to absorb. Premiums collected from policyholders finance the scheme in the first instance, while the state provides an additional safeguard in the event of extreme systemic losses, with support of up to €5 billion annually in 2025 and 2026.

The long-term objective is clear: build a mature and resilient insurance market in which private actors progressively assume a greater share of risk, while public support remains available for truly exceptional events.

To balance affordability with market discipline, the legislation also establishes differentiated rules on deductibles, coverage limits, and premium structures, reflecting the diverse circumstances of micro-enterprises, SMEs, and larger firms.

Building Policy on Evidence

The reform is the result of extensive analytical work and collaboration across sectors. The Ministry of Economy and Finance partnered with civil protection authorities, insurers, and industry associations to develop detailed risk assessments, historical loss databases, and forward-looking catastrophe models.

This evidence-based approach helped ensure that the scheme reflects Italy's territorial realities while supporting sound, sustainable pricing.

During its 2024 G7 Presidency, Italy developed a High-Level Framework for Public–Private Insurance Programs Against Natural Hazards. The framework provides practical step-by-step guidance for governments seeking to reduce protection gaps through structured partnerships, involving, in particular, policy makers, insurance regulators, and supervisors - rather than relying exclusively on post-disaster public compensation.

Italy has also advanced this agenda within the G20 Sustainable Finance Working Group, which it co-chaired in 2025 under South Africa's Presidency. Discussions focus on how insurance solutions can strengthen resilience not only in advanced economies but also in emerging and developing countries, where exposure to climate-related risks is rising while fiscal resources remain constrained. This work culminated in the development of a set of recommendations to scale up adaptation investment and reduce insurance protection gaps, framing insurance protection as part of broader, multi-layered disaster risk finance strategies, in which different tools address different layers of risk depending on their frequency and severity.

At the European level, Italy is contributing to a new dialogue on disaster risk financing and insurance innovation, helping shape approaches that combine resilience, affordability, and fiscal sustainability.

A Blueprint for the Future?

Italy's experience highlights a fundamental question facing policymakers worldwide: how can governments mobilize private capital to strengthen resilience while ensuring that essential protection remains affordable?

The answer increasingly lies in multi-stakeholder partnerships. Mandatory coverage expands participation and creates more predictable recovery mechanisms, while public support helps absorb catastrophic tail risks that markets alone may struggle to manage.

Challenges remain. Some observers argue that households should eventually be included, while others point to emerging climate threats such as droughts, heatwaves, and severe storms that fall outside the current scope.

As climate and disaster risks continue to escalate, countries around the world will need innovative ways to protect citizens, businesses, and public finances. Italy's model, combining mandatory coverage, public reinsurance, and a phased implementation strategy, offers one possible path forward.

In taking decisive action to close its protection gap, Italy has done more than strengthen its own resilience. It has demonstrated how insurance can become a powerful tool for climate adaptation, fiscal stability, and long-term economic security.