IAG will push ahead with its plans to acquire RACQ after the competition watchdog gave the $855 million acquisition the green light today.
The Australian Competition and Consumer Commission approval comes in light of multiple other big buyouts of club insurance including IAG’s $3.5 billion bid for RAC’s insurance service in WA and a takeover of the South Australian club insurer RAA by global insurer Allianz.
The decision on the later decision has been postponed by the ACCC.
Assessing the November proposal by IAG in Queensland, the ACCC concluded in its assessment that the proposed acquisition was unlikely to substantially lessen competition in any market.
“In relation to the supply of home and contents and motor insurance, the ACCC found that post acquisition there would remain a number of both established and mid-tier insurance suppliers who would provide effective competition to the merged firm. The ACCC also found that RACQI is not a particularly vigorous competitor in terms of price or product offerings.”
The ACCC also considered how challenges such as the growth in extreme weather events and rising reinsurance and regulatory costs affected RACQI.
“The ACCC found that these factors, combined with RACQ’s limited access to capital as a mutual organisation, are likely to limit RACQ’s ability to compete in the future,” it noted.
In relation to the acquisition of repair services, the ACCC found that the proposed acquisition is unlikely to substantially lessen competition in these markets as IAG is unlikely to have the ability to diminish prices or supply terms after the acquisition due to its position in the market relative to other insurers and acquirers of these services.
Welcomed by insurers
In a statement, IAG Managing Director and CEO Nick Hawkins said the decision was a step towards IAG and RACQ partnering to protect Queenslanders.
“As we outlined when we announced the strategic alliance in November last year, RACQ will maintain brand and customer relationships, while leveraging IAG’s scale, financial strength, best-in-class technology for claims, policies and pricing, customer orientated claims experience and underwriting expertise.” Hawkins says.
RACQ Chief Executive Officer David Carter said it was a great first step.
“It recognises the benefits that would come from the two organisations working together as part of a 25-year strategic partnership agreement,” he says.
“We are just as confident today as we were when we announced the partnership, in the benefits that will come from our two organisations working together.”
IAG will acquire 90 percent share in RACQ Insurance under the deal with an option to acquire the additional 10 per cent from the motoring club after two years and with the two organisations entering into a 25-year distribution agreement.
Criticised by MTAA
Meanwhile the MTAA says it is deeply disappointed byte decision saying it is “an assault on competition.”
MTAA Interim Executive Director Rod Camm slammed the approval as a dangerous step toward the concentration of Australia’s insurance sector in the hands of a few dominant players, warning of dire consequences for consumers and businesses alike.
“By handing over yet another iconic motoring brand to a corporate behemoth, the ACCC has effectively adversely altered structure in the Australian insurance sector,” Camm says.
“This decision will turbo charge market dominance, and leave Australians with fewer choices and higher costs.”
The MTAA has also strongly denounced the IAG 20-year underwriting agreement with RAC WA, as misleading for consumers and catastrophic for independent repairers.
“The MTAA is sounding the alarm on the consequences of this unchecked consolidation, predicting the 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
”Consumers may continue to see trusted local brands, but the reality behind the scenes is a corporate takeover,” Camm says.
“These arrangements ruthlessly strip decision-making away from locally accountable institutions and hand control to national corporate agendas that prioritise profits over people.”