The competitor regulator has opposed IAG’s $1.35 billion acquisition of RAC Insurance, saying it could substantially reduce competition in the WA home and motor markets.

The proposed deal would give IAG market shares of about 55%-65% in motor insurance and about 50%-60% in home and contents in WA, according to the Australian Competition and Consumer Commission.

“We concluded that the proposed acquisition would eliminate the significant competition between IAG and RACI and reduce the competitive pressure they each place on rival insurance brands,” ACCC chair Gina Cass-Gottlieb said today.

The acquisition would probably allow IAG to increase premiums and reduce the quality of its suite of products, with flow-on effects to other insurer offerings, Ms Cass-Gottlieb says.

The ACCC considered how industry challenges such as growing numbers of extreme weather events and rising reinsurance, claim and regulatory costs may affect RAC Insurance. 

“Our investigation found that RACI remains a strong and profitable competitor and is adequately positioned to manage these challenges,” Ms Cass-Gottlieb said.

IAG now intends to lodge an application with the ACCC for assessment of the RAC alliance under the new mandatory merger control regime, which takes effect on January 1.

“As part of the alliance we have committed to staying local, investing in enhancements to the RAC member experience and continuing to deliver high-quality and competitive insurance products and services,” CEO Nick Hawkins said. 

“This would be made possible by our position as a national insurer, investment in technology capabilities and strong capital management.” 

The deal, announced in May, comprised $400 million for the acquisition of RAC insurance and $950 million for a 20-year distribution and brand licensing agreement.

In September the ACCC released a statement of issues on WA market impacts, after previously approving a similar deal involving IAG and RACQ, plus the Allianz acquisition of RAA underwriting.