Insurers can tap into an additional market potentially worth $17 billion in annual gross written premium as privatisation of state-run compensation schemes gathers pace, according to Standard & Poor’s (S&P).

The 2014 sale of the Territory Insurance Office’s insurance operations to Allianz Australia, reforms to the compulsory third party scheme in SA and signs of similar moves in other states have created new growth avenues, the ratings agency says in a report.

“Privatisation of government insurance compensation schemes could be a new source of premiums for property and casualty (P&C) insurers,” it says. “We… see emerging opportunities for insurers in the privatisation of underwriting or claims management of non-catastrophic injuries.”

S&P says the P&C sector remains “low risk”, reflecting strong underwriting discipline, steady market prospects, a sound regulatory framework and a stable political environment.

Insurers have retained customers while diversifying their business portfolios as they seek to fend off new entrants.

“We believe the operating performance of Australian non-life insurers will continue to be sound, albeit subdued, in the medium term while cost and claims inflation remains low and pricing remains rational on the whole,” the report says.

“Insurers have largely been able to fund their targeted premium reductions through long-term cost-saving initiatives and lower reinsurance rates. They have also benefitted from strengthened operational and pricing and underwriting capabilities.”

Aggregator websites will continue struggling to make significant headway in Australia despite their overwhelming success in other developed markets, S&P says.

“Larger general insurers in Australia have chosen not to participate, which has significantly restricted the product offering and appeal of these sites.

“There remains only modest risk that price publishing will become mandated by regulation given a lack of serious backing by policymakers and regulators, and this was not an issue raised in the findings of Australia’s Financial System Inquiry [published last year].”

S&P says the institutional framework remains “very strong”, with P&C insurers regulated by solid prudential requirements set by the Australian Prudential Regulation Authority.