Australia's competition watchdog, the Australian Competition and Consumer Commission (ACCC), has decided to oppose Insurance Australia Group Limited's (IAG) planned acquisition of RAC Insurance Pty Limited (RACI) from the Royal Automobile Club of Western Australia.
The watchdog announced this in an 11 December press release, following an investigation into the proposed acquisition. The ACCC said the probe showed that the move would likely result in a significant reduction in competition in the provision of motor vehicle insurance and home and contents insurance in Western Australia.
RACI leads the market in Western Australia’s motor vehicle insurance and home and contents insurance, competing under its RAC WA brand, the ACCC said. IAG, meanwhile, is among the two largest personal insurers in Australia and maintains a strong presence in Western Australia. The company is recognised for its NRMA brand, robust IT capabilities, and substantial financial resources.
The ACCC said that the acquisition would give IAG overall market shares of around 55–65% in motor vehicle insurance and around 50–60% in home and contents insurance in Western Australia.
ACCC Chair Gina Cass-Gottlieb said, “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 for the offerings of other insurers.”
The ACCC said it has carefully considered the level of competition provided by other insurers in Western Australia, namely Suncorp, Allianz, and QBE, and mid-tier insurers Auto & General, Youi, and Hollard. However, it said that while alternative insurers exist, “they would be unlikely to prevent the significant loss of competition that would likely result from the proposed acquisition”.
Ms Cass-Gottlieb added, “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 does not acquire RACI, RACI would have the capability to continue to compete effectively in Western Australia in the future.”