Selling donated properties: How insurance unlocked the market

Ten years after the launch of the first insurance coverage designed to facilitate the sale of donated properties (Lloyd’s Donazione Sicura), insurance company AON asked SDA Bocconi School of Management's Finance Knowledge Area to address two key questions. First: how has the introduction of insurance policies impacted the marketability of donated properties? Second: what challenges remain to further improve the circulation of these assets?

These questions are crucial because they address one of the most sensitive issues in Italian inheritance law. Real estate donations are a common tool for intergenerational wealth transfer, but they have historically been limited by the possibility that legitimate heirs could claim their rights to the donated property, making every sale complex and risky.

The insurance formula provides that, if a legitimate heir acts against a third-party buyer to reclaim the property or receive financial compensation for their legitimate share, the insurer replaces the insured (i.e. the buyer) in paying the sum demanded by the heir. This guarantee is provided in exchange for a premium of less than €1,000 for the purchase of a €300,000 property, payable once for indefinite coverage (i.e., until all known, unknown, and future heirs are barred from making claims against the insured).

The research methodology cross-referenced data from various authoritative sources, including the Real Estate Market Observatory of the Italian Revenue Agency and the National Council of Notaries. It was found that 4.6% of Italian homes (3 million out of 65 million properties) are of donated origin. According to notarial data, real estate donations account for about 75% of all donations made in Italy, with an average property value of approximately €142,000.

From an insurance perspective, the number of policies issued to protect buyers from potential legal claims has skyrocketed. In 2014, only 367 policies were issued; by 2022, the number had jumped to over 22,800, covering the majority of transactions involving donated properties.

This tool has removed legal barriers that, until a few years ago, discouraged buyers and financial institutions from dealing with donated properties. Not only do the policies protect buyers, but they also ensure that bank mortgages remain intact, safeguarding the interests of borrowers and lenders. It is noteworthy that all major Italian banks have adopted this tool as an accepted guarantee for mortgage issuance.

The resolution of this legal and practical issue has not only boosted activity in the real estate sector but has also set a precedent that could be applied to other legally complex areas.

Despite significant progress, however, the donated property sector still has room for improvement. About 19% of potential transactions are not covered by insurance policies, possibly due to a lack of widespread awareness of the benefits of these solutions among potential buyers and some industry operators. In the future, targeted awareness campaigns could be useful to inform the public about the advantages of these policies.

In terms of legislation, there is ongoing debate about possible reforms to the Civil Code to further simplify the transfer of these properties. However, any legislative intervention must be balanced with the protection of the rights of legitimate heirs, a cornerstone of Italian inheritance law. So far, insurance solutions have proven capable of bridging this gap. In conclusion, the insurance solution has been demonstrated to be a virtuous example of how private initiatives can resolve long-standing structural problems.