Insurance Australia Group’s planned purchase of RAC Insurance ‘could substantially lessen competition’: ACCC

The competition watchdog has for the second time in a year found Insurance Australia Group’s controversial planned $1.35 billion purchase of RAC Insurance could substantially reduce competition. Both supply insurance for cars, and homes and contents in WA, but RAC is the dominant player. Australian Competition and Consumer Commission chair Gina Cass-Gottlieb said the proposed acquisition would combine two of the State’s biggest insurers. The merger case — which RAC on Friday said it remained confident in the merits of — returned to the watchdog this year after it and IAG resubmitted it under a revamp of the nation’s competition laws. The ACCC has not reached a conclusion on the proposed mega deal and will continue to consider it under what it calls an “in-depth Phase 2 assessment”. “We consider the acquisition could substantially lessen competition in both the supply of motor vehicle insurance and the supply of home and contents insurance in Western Australia,” Ms Cass-Gottlieb said on Friday. Under last May’s bid, RAC would receive $400m upfront and a further $950m over 20 years by distributing its branded insurance products through ASX-listed IAG, which would underwrite policies. The watchdog rejected the transaction in December, saying it would give IAG too much market power in WA — about 55 to 65 per cent of the State’s motor insurance market and 50 to 60 per cent of its home and contents market — and drive up premiums. But IAG and RAC were able to resubmit the application, under a revamp of Australia’s competition laws this year, which gave the ACCC room to approve an anti-competitive deal if it was seen as in the public interest. IAG said the development was in line with the ACCC’s new merger control process, with the second stage assessment expected to take up to 90 business days to complete, subject to any extensions. “IAG remains confident in its position and will continue to work constructively with the ACCC,” the $17.5 billion, Sydney-based company said. The Motor Trade Association of Western Australia said it had consistently raised concerns about the proposal. Not only was it worried about the impact of increased market concentration on insurance market competition, but also across the broader automotive repair sector, including smash repair services, which the ACCC had indicated it was also considering. “Further consolidation in the Western Australian insurance market has the potential to reduce consumer choice and place increased pressure on independent automotive repair businesses,” MTA WA group chief executive Neil Le Febvre said. “A competitive and balanced insurance market is essential to ensuring fair outcomes for consumers, as well as supporting repairers to operate on commercially sustainable terms.” An RAC spokesman on Friday said: “RAC remains confident in the merits of the partnership, which will ensure we can continue to offer competitive, reliable and high-quality insurance for current and future generations of members.” Some RAC members have taken to social media to oppose the sale, accusing the mutual of selling out customers by offloading the insurance business to a profit-motivated group such as IAG, which operates brands including CGU and WFI. IAG boss Nick Hawkins defended the plan on a visit to Perth last month, saying RAC customers “will be better” under the ownership of IAG, which itself grew out of a motoring mutual, the NRMA. RAC had “been a successful business but the future is tougher”, he said, insisting the combination would not materially change the construct of the WA insurance market. “Pretty much everyone who is a player in the east coast market does business here — West Australians have had choice,” he said. Announcing the deal, RAC said it was responding to “an increasingly complex and evolving regulatory environment, higher claims volumes and expenses, and rising reinsurance costs, along with a requirement to hold larger capital reserves for claims and natural disasters”. RAC was formed in 1905, has more than 1.3 million members and has branched out into areas including resorts and home security monitoring.