The Motor Trades Association of Australia has urged regulators to reject IAG’s “remedy offer” for the acquisition of RAC Insurance, saying it is “window dressing” that fails to fix competition issues.

Last December, the Australian Competition and Consumer Commission found the deal would give IAG between 55% and 65% of WA’s motor insurance market and remove the state’s leading independent insurer.

This month, IAG offered a five-year court-enforceable undertaking covering insurance product benchmarking, smash repair exclusivity and a prohibition on owning repair facilities in WA.

But MTAA executive director Bruce Billson says the deal would fundamentally reshape Australia’s insurance and repair markets and be part of a national pattern of consolidation.

“If this deal proceeds, three motoring club insurers – RACQ, RAA and RAC Insurance – will have been absorbed by major national corporations in under 12 months," he said.

Mr Billson, a former federal small business minister, says the deal’s duration alone exposes the inadequacy of the offer.

An exclusive distribution agreement would lock IAG into the RAC brand for 20 years.

“Five years of behavioural promises against a 20-year lock-in is not a remedy; it is a fig leaf,” he said.

“The undertaking offered by IAG is window dressing for what is nothing more than a waiting game.

“For the first quarter of the agreement, IAG would be on its best behaviour, while motorists thought their motoring organisation was still providing competitive insurance when the brand is actually being exploited to badge-engineer IAG policies, practices and pricing.

“For the remaining three-quarters, WA repairers and motorists would be on their own.”

Mr Billson says the ACCC has stated a “strong preference for structural remedies” in merger assessments, but IAG’s proposition has none.

“The ACCC opposed this deal and continues to oppose it because the harm is structural. If it goes ahead despite all the obvious risks and consequences that similar deals in other states have produced, the remedy should at least be structural if motorists and repairers are to have any chance to benefit from some kind of competition.”

Mr Billson warns that if one insurer controls most of a state’s market, the knock-on effects for small repair businesses are predictable. It would lead to lower rates, longer payment delays, less professional independence and less ability to serve other customers, he says.

In its submission on the bid, the motor traders and repairers’ peak body seeks rejection of the acquisition or, failing that, independent oversight of complaints and monitoring, an internal code custodian within IAG to uphold the undertaking, enforceable 30-day payment terms, a repair cost variance register and protections for repairers’ professional judgment on methods and parts.