Impact of earthquake on Italian insurers low due to lack of coverage

Despite significant economic losses, the impact on Italy’s insurance industry from the August 2016 earthquake will remain contained, due to low insurance penetration rates of earthquake covers, according to a briefing by ratings agency AM Best.

The briefing estimated the penetration rate of earthquake insurance at between 1 percent and 2 percent of Italy’s gross domestic product.

AM Best estimated that insured losses will be tantamount to 10 percent of overall economic losses.

The ratings agency compared this event to the insured losses for Italy’s L’Aquila event in 2009, which reached 14 percent of total economic losses, estimated at €2.7 billion by Swiss Re.

Losses related to this catastrophe, along with other events in 2016, are expected to have increased significance on the 2016 combined ratios of the insurers it rates in the Italian market.

However, AM Best said it is unlikely to directly result in a significant deterioration in their earnings or balance sheet strength.

“For most insurers, the losses are unlikely to be high enough to trigger their catastrophe excess of loss protection, although proportional covers will enable them to transfer a share of the losses to the reinsurance industry,” said Alvise Argenton, financial analyst at AM Best.

AM Best commented: “Earthquake remains a recurring, devastating peril in Europe and is heavily underinsured. There is significant disparity in terms of insurance penetration, catastrophe exposure and disaster preparedness across Europe.

“Unlike Spain and France, Italy does not have a formalised natural catastrophe scheme in place and earthquake protection usually is purchased as an extension of fire insurance, with no mandatory earthquake insurance attached to commercial or homeowners’ policies.

“Furthermore, when earthquake insurance is purchased, deductibles applied by insurers tend to be high, squeezing actual coverage rates to as little as 50 percent of the insured damage.”