The competition watchdog has given the green light to the second big takeover of a state-based club motoring insurer, this time in South Australia.
The ACCC issued a statement saying it will not oppose Allianz Australia Insurance Limited’s proposed acquisition of the Royal Automobile Association of South Australia’s personal insurance business (RAAI).
Like the approval of IAG’s buyout of RACQ last month, the decision has drawn the ire of the MTA’s who have condemned it as another blow to the industry, saying the takeovers by large corporate insurers could cripple independent repairers.
The ACCC in its decision said there were sufficient competing insurers in South Australia to make the merger permissible.
Investigation Focus
“Our investigation focused on the closeness of competition between RAAI and Allianz and the extent to which other insurers are competing effectively to supply insurance to South Australians,” ACCC Commissioner Dr Philip Williams says.
“We also considered how competitive RAAI is now and is likely to be in the future without being acquired by Allianz. The likely impact of the acquisition on insurance prices, coverage and service offerings were all carefully considered.
“The ACCC found that other suppliers will continue to compete with, and constrain, a merged Allianz and RAAI after the acquisition, making the transaction unlikely to substantially lessen competition.
“As well as being the two largest insurers in Australia, Suncorp and IAG also have a significant presence in South Australia. As such, both are likely to compete effectively against Allianz in South Australia even after it has purchased RAAI,” Dr Williams says.
“Mid-tier insurers Auto & General (Budget Direct) and Youi are also growing their market share nationally and will continue to compete on price in South Australia.”
“Dark Day” for SA
But the leading industry body, MTA SA has condemned the decision with CEO Darrell Jacobs saying South Australian motorists have awoken to a less competitive insurance sector entirely run by corporate giants.
“This is a dark day for South Australian motorists and small businesses, with local member motor-club insurance on death’s door,” Jacobs says.
“Allianz is using South Australian trust in the RAA brand, while pulling the wool over their eyes. With this decision, South Australian motorists will get stung.”
The decision will allow Allianz to use the RAA local branding but Jacobs says, “RAA Insurance is now as local as lederhosen.”
Jacobs says like Queensland the decision concentrates the South Australian motor insurance market into the hands of a few multi-national and publicly listed insurers, warning that the combined market share of RAA Insurance and Allianz would have long term consequences for consumers.
Cold comfort
“RAA Insurance has for a long time held the interests of its members first, particularly during the claims process,” Jacobs says.
“But local call centres are cold comfort for policy and underwriting decisions made overseas.”
“The ability for motorists to make real choice of repair decisions is likely to be the first of many changes before us.”
The MTA SA predicts consolidation will mean crippling pressure on independent and family-run repairers, many of whom will struggle to survive and eroded service quality and vanishing consumer choice, as the industry becomes homogenised under corporate control.
“Insurers need to work with automotive repairers and ensure customers get their choice of repairer without taking them for a ride – often kilometres from home.”
The ACCC in its statement said it considered the impact of the proposed acquisition on markets for the acquisition of smash repair services, windscreen repair and replacement services, and building repair services in South Australia.
It said the proposed acquisition is unlikely to substantially lessen competition in these markets as Allianz is unlikely to have the ability to diminish prices or supply terms 2 after the acquisition due to its position in the market relative to other insurers and acquirers of these services.
WA still to come
The ACCC will also shortly be considering IAG’s proposed acquisition of RAC Insurance from RAC WA.
“This decision in relation to Allianz and RAAI should not be treated as being indicative of the ACCC’s decision for that transaction. The competitive dynamics and issues in each transaction are unique and the ACCC is considering each transaction individually.”
Shift against competition
MTAA Interim Executive Director Rod Camm said the concentration of market power among a few major insurers was reducing competition and weakening outcomes for consumers and small businesses.
“Australia is seeing a fast-moving consolidation of its insurance sector, with serious consequences for choice, pricing, and accountability,” Mr Camm said. “Less competition means fewer options for consumers and increasing pressure on local repairers.”
MTAA has also pointed to a third deal now underway. IAG has reportedly entered into a 20-year underwriting agreement with RAC WA. While that deal is yet to be reviewed by the ACCC, it continues a trend that is reshaping the insurance landscape.
“These types of deals may retain local branding, but behind the scenes control is shifting to large national players,” Mr Camm said.
“Decisions that once rested with member-focused organisations are now moving further from the communities they serve.”