The competition regulator has approved Allianz Australia’s $642 million acquisition of RAA Insurance following a review of market impacts.

Allianz plans to underwrite RAA general insurance policies, excluding travel, and manage claims under the SA motoring club’s brand. The two groups have also struck a 20-year distribution arrangement.

The Australian Competition and Consumer Commission says other established and mid-tier suppliers of home, contents and motor cover will provide effective competition to the merged business in SA and more broadly.

“As well as being the two largest insurers in Australia, Suncorp and IAG also have a significant presence in South Australia,” commissioner Philip Williams said today. “As such, both are likely to compete effectively against Allianz in SA, even after it has purchased RAAI.

“Mid-tier insurers Auto & General (Budget Direct) and Youi are also growing their market share nationally and will continue to compete on price in SA.”

Analysis shows that while RAA has a strong brand reputation, competition in terms of price and policy coverage is being driven by other insurers.

The ACCC considered challenges facing the insurance industry, with a focus on increasing extreme weather and rising reinsurance and regulatory costs. It found RAA is likely to be less competitive than it has been in recent years.

The regulator also found the proposed deal is unlikely to substantially reduce competition in repair services, because Allianz is unlikely to have the ability to diminish prices or supply terms.

The ACCC says it will soon consider a proposed acquisition of WA’s RAC Insurance by IAG, which was announced on May 15. The ruling on Allianz and RAA should not be seen as indicative of its thinking on the RAC deal, it says.

“The competitive dynamics and issues in each transaction are unique and the ACCC is considering each transaction individually.”