IAG and WA motoring group RAC say they remain confident about a proposed insurance merger after the competition regulator said it would complete more detailed inquiries.

As reported in a Breaking News bulletin on Friday, the Australian Competition and Consumer Commission says IAG’s acquisition of RAC’s underwriting operation would combine two of the state’s biggest insurers.

“We consider the acquisition could substantially lessen competition in both the supply of motor vehicle insurance and the supply of home and contents insurance in WA,” commission chair Gina Cass-Gottlieb said.

IAG says the development is in line with a process introduced in January where the ACCC may start a more detailed phase-two assessment if the initial review identifies concerns.

The insurer says it “remains confident in its position” and will continue to work with the ACCC.

RAC says it is confident in the merits of the partnership, which will ensure it can continue to offer competitive, reliable and high-quality insurance.

In-depth inquiry issues include the likelihood of new market entrants, the degree to which the businesses compete, and how costs and geographic factors affect RAC Insurance (RACI).

“While the industry has faced challenges, including increased regulatory costs, increased reinsurance costs and claims cost volatility, information before the ACCC suggests that these challenges appear to have lessened recently, and that RACI is well placed to continue to manage these challenges in the future absent the acquisition,” the phase-one decision says.

The ACCC warns market share and switching data show alternative insurers have struggled to grow and/or maintain share in WA, while the acquisition could result in IAG gaining power versus smash repairers.

That could allow it to demand repairers work only for IAG, prioritise its customers’ repairs or maintain spare capacity to speed those repairs.

“The effect of this conduct could be that competing insurers are foreclosed or partially foreclosed from accessing quality and timely smash repairs, and/or incur higher costs in acquiring smash repairs,” the ACCC says.

The Motor Trades Association of Australia interim ED Peter Jones says insurance and repairs are intrinsically linked, “any reduction in competition upstream inevitably impacts outcomes downstream” and the merger should be stopped.

The ACCC has called for submissions by May 4, with the review to take up to 90 business days.

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