Insurance Australia Group (IAG) plans to seek further regulatory assessment of its proposed $1.4 billion strategic alliance with the Royal Automobile Club of Western Australia (RAC) after the Australian Competition and Consumer Commission (ACCC) decided to oppose the transaction on competition grounds.
The ACCC has blocked IAG’s proposed acquisition of RAC Insurance Pty Ltd (RACI), the underwriting arm of RAC, concluding that the deal would likely result in a substantial lessening of competition in the supply of motor vehicle insurance and home and contents insurance in Western Australia. RACI holds the leading position in both product lines in the state under the RAC WA brand. IAG is already one of Australia’s two largest personal insurers and an established participant in the Western Australian market through the NRMA Insurance brand.
According to the ACCC, the proposed acquisition would result in IAG holding an overall share of about 55% to 65% of the Western Australian motor insurance market and around 50% to 60% of the home and contents segment. “We concluded that the proposed acquisition would eliminate the significant competition between IAG and RACI, and reduce the competitive pressure they each place on rival insurance brands. We concluded that the acquisition would be likely to allow IAG, after acquiring RACI, to increase premiums and reduce the quality of its suite of insurance products, with likely flow-on effects to the offerings of other insurers,” said ACCC chair Gina Cass-Gottlieb.
In its review, the ACCC assessed the role of other insurers active in Western Australia, including Suncorp, Allianz, and QBE, as well as mid-tier players Auto & General, Youi, and Hollard. While these companies compete in motor and home insurance, the regulator found they would be unlikely to replace the direct rivalry currently provided by IAG and RACI.
The commission also examined how the market might develop if RACI remained independent, considering industry-wide issues such as more frequent extreme weather events, increased reinsurance and claims costs, and rising regulatory expenses. “Our investigation found that RACI remains a strong and profitable competitor and is adequately positioned to manage these challenges. We have concluded that if IAG doesn’t acquire RACI, RACI would have the capability to continue to compete effectively in Western Australia in the future,” Cass-Gottlieb said.
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The ACCC considered whether the acquisition could enable IAG to limit other insurers’ access to repair services but reported limited evidence that the company would have the ability or incentive to do so. The proposed deal does not extend to RAC’s roadside assistance business or its other operations, including auto servicing and repair, finance, retirement living, home security, batteries, tyres, and travel and tourism.
Following the decision, IAG said it intends to lodge an application for assessment of the proposed alliance under the ACCC’s forthcoming mandatory merger control regime, which is scheduled to commence on Jan. 1. IAG managing director and CEO Nick Hawkins said the alliance was structured to support RAC members and the Western Australian insurance market. “IAG and RAC have proven track records of successful partnerships and are committed to delivering competitive and accessible insurance products for all Western Australians,” Hawkins said.
Hawkins added: “As part of the alliance, we have committed to staying local, investing in enhancements to the RAC member experience, and continuing to deliver high quality and competitive insurance products and services. This would be made possible by our position as a national insurer, investment in technology capabilities, and strong capital management. Together, we would also continue to invest in initiatives that support local communities and provide benefits to RAC, its members, and Western Australia.”
In its statement, RAC said it recognised the ACCC’s role but remains supportive of the proposal. “While we are naturally disappointed with this outcome, we acknowledge the role of regulators and the process undertaken. We still believe the proposed partnership has merit and would be beneficial for our teams and members. RAC remains committed to pursuing the partnership and supports this next step,” RAC said.
The Motor Trades Association of Australia (MTAA) said the ACCC’s decision reflects wider concerns about consolidation in the motor insurance market and its impact on repairers and consumers. MTAA interim executive director Peter Jones said the findings were consistent with issues raised by the association and its state members about the level of concentration among major insurers. “We applaud the ACCC for taking a strong and decisive position. The regulator has acknowledged what motorists and repairers have been experiencing for years: market consolidation among major insurers is reducing competition, driving up premiums, and narrowing consumer choice,” Jones said.
Jones pointed to other recent transactions, including IAG’s acquisition of RACQ Insurance in Queensland and Allianz’s purchase of RAA Insurance in South Australia. “If this deal had proceeded, three long-standing member-based insurers would have disappeared in less than 12 months. This is not coincidence; it is a trend,” he said.
According to MTAA, greater concentration can influence the commercial terms faced by independent repair businesses, including pressure on repair rates, the use of restrictive agreements, and limits on motorists’ freedom to choose their repairer. “The ACCC has rightly recognised that Western Australians – and Australians more broadly – deserve a competitive market with genuine choice,” Jones said.
In light of these developments, MTAA has reiterated its call for a mandatory national Motor Vehicle Insurance and Repair Industry (MVIRI) Code of Conduct to establish “fair, transparent, and consistent rules governing insurer-repairer interactions.”
