By Alberto Chiumento and Andrea Mandala

ROME (Reuters) - Italian companies are preparing to comply with a requirement to take out natural disaster insurance from next April, although some fear it will be hard to enforce and too costly.

Many small and medium-sized firms, which form the backbone of Italian business, have until now bet on government support to weather increasingly frequent climate-related disasters.

Italy's northern region of Emilia-Romagna has recently been particularly hard hit by floods, with four since May 2023. The first and most devastating caused 8.5 billion euros ($8.93 billion) of damage.

With the euro zone's second-highest public debt, Italy can ill afford to foot the bill and is set to end this reliance on the state, potentially resulting in considerable savings.

The law obliges firms to insure assets such as equipment, buildings and land in Italy, where environmental research and protection institute ISPRA says some 94% of towns are at risk from landslides, floods or coastal erosion.

Italy spends around 4-5 billion euros a year on compensation for natural disasters, figures from insurance watchdog IVASS show, around 0.25% of gross domestic product.

And while the Italian market is growing, with insured assets impacted by natural disasters totalling a record of around 6 billion euros ($6.30 billion) in 2023, data from industry association ANIA shows, only 5% of Italian firms had cover.

"Using the money saved for prevention plans and better infrastructures is the central point," said Andrea Bellucci, who teaches valuation of insurance companies at Perugia University.

Although the law has been cautiously welcomed by most firms, some are concerned that policies will be onerous and complex.

"We want it to be tailored to companies' needs to reflect the extent of the risks, and not one-size fits all to boost the revenue of insurers," said Stefano Valvason, general director of API, an association of small and medium-sized businesses.

Mauro Di Nunzio, who runs a company that produces dried fruits in Italy's southern region of Puglia, welcomed the new rules, saying paying for insurance was preferable to relying on "slow, inadequate and inefficient" state compensation.

Bruno Panieri, director of economic policy at small business lobby Confartigianato, said clarity was key and called for the creation of a single, price-comparison website.

Analysts say another challenge will be enforcing the new regulation, which has been criticised by some as lacking an effective system of sanctions. And if take-up remains low, it will undermine risk-sharing and drive up premiums.

START OVER

The law may offer larger insurers an advantage as they can spread risk among more clients and regions, Stefano Frazzoni, senior partner at business consultancy Prometeia, said.

Five insurance groups currently provide about 70% of natural disaster coverage in Italy, where the ratio between insured losses and total economic losses is 69%, compared with 20% in France and 27% in Germany, data from Swiss Re shows.

The state will act as re-insurer, enabling insurance companies to tap into guarantees from the publicly-owned insurance and advisory group SACE, to offload some risks.

Nicolo Bertone, whose carpentry business in the north-western Liguria region was uninsured when it suffered 80,000 euros of damage in a flood in October, supports the new rules.

"Being covered helps to keep your spirits up when you have to start over," he told Reuters.

($1 = 0.9520 euros)

(Additional reporting by Romolo Tosiani; Editing by Gavin Jones and Alexander Smith)