Sicily Storm Exposes Italy's Insurance Gaps

A recent cyclone in Sicily, Cyclone Harry, has caused over €1 billion in damages and exposed a significant flaw in Italy's mandatory business insurance law. Businesses that were insured discovered their policies covered events like earthquakes and floods but excluded damage from cyclones and storm surges. This oversight means many companies, particularly small and medium-sized enterprises, are left with substantial unreimbursed losses.

The mandatory insurance law, enacted last year, requires businesses to insure their assets, with non-compliance potentially affecting access to disaster relief. However, the standard policies appear to exclude specific weather-related events like cyclones. Insurers suggest a focus on risk awareness and adaptation, as climate change is amplifying storm intensity, evidenced by record wave heights measured in the Mediterranean.

The aftermath of Cyclone Harry risks undermining efforts to close Italy's natural catastrophe protection gap, which is already one of the widest in the EU. Without reliable insurance, banks may be hesitant to lend, potentially slowing investment and increasing pressure on public finances. Insurers may respond by raising premiums or withdrawing coverage from high-risk areas, creating "insurance deserts."