New Zealand: Competition regulator wary of coordinated effects in proposed Vero-Tower merger
Source: Asia Insurance Review | Sep 2017
The Commerce Commission has expressed concern over the proposed merger of Vero and Tower, saying that if it succeeded, it would result in an enduring structural change to home, contents and motor vehicle (HCMV) markets with a shift from three main competitors to two, and that the competitive effects of the merger would play out over a longer timeframe.
The competition watchdog made its comments in July when it denied Vero’s application for the authorities’ clearance to buy Tower.
Setting out reasons for the rejection, the Commission said: “First, the merger could give rise to unilateral effects in the provision of HCMV insurance; second, the merger could increase the potential for the merged entity and all or some of its remaining competitors to coordinate their behaviour and collectively exercise market power such that quality reduces and/or prices increase in the provision of HCMV insurance; and third, the merger could give rise to unilateral effects in the purchase of claims-related services (collision repair and autoglass/windscreen repair and replacement).”
The Commission also said: “We consider that HCMV markets have characteristics that make them vulnerable to coordination. In particular, product prices and terms are sufficiently transparent to competing insurers, while being opaque to many consumers, and there are incentives to achieve coordination. Additionally, coordination need not apply to all product characteristics to be beneficial to insurers.
“We are not satisfied that the merger will not have, or would not be likely to have, the effect of substantial lessening of competition in HCMV insurance markets due to coordinated effects.” A