IAG will face less pressure to compete on “price, quality and service” if its proposed acquisition of RAC Insurance is approved, a motor trades body has warned.

In a submission to the competition watchdog, the Motor Trades Association of Australia says it remains “strongly opposed” to the $1.35 billion deal.

This month, in a preliminary view, the Australian Competition and Consumer Commission flagged concerns over the deal’s impact on competition in the home and motor insurance markets. It expects to make a final decision on November 27 after reviewing feedback on its statement of issues.

MTAA says the commission is right to be concerned that IAG’s acquisition may substantially reduce competition in WA’s already highly concentrated insurance markets.

“[It] would strip the market of an important competitive constraint, reducing pressure on IAG to compete on price, quality, and service,” the submission says. “Without [RAC Insurance], IAG would face fewer risks of customers switching in response to higher premiums or poorer service.

“This would allow IAG to exercise greater pricing power, reduce consumer choice, and diminish service responsiveness.

“In particular, the acquisition would give IAG a dominant position in WA motor insurance, leaving motorists with fewer alternatives and increasing the likelihood of higher premiums and poorer outcomes when lodging claims or securing repair.”

The deal would mean giving IAG control of up to 70% of the state’s motor insurance market, MTAA says, and the risks extend beyond premiums to the repair supply chain.

Association members “consistently” report pressure from major insurers to accept lower payment rates and restrictive contract terms, the submission says.

“The loss of [RAC Insurance] as an independent purchaser of repair services would further erode competitive tension in the repair supply chain. These outcomes are directly at odds with the ACCC’s objectives of protecting competition and consumer welfare.”

MTAA interim executive director Rod Camm says it is no coincidence that insurers are buying member-based rivals, referring to approvals for IAG to acquire RACQ Insurance in Queensland and Allianz to purchase RAA Insurance in SA.

“It is a pattern. Trusted member-based insurers are being swallowed up one by one,” he said.

“What’s left is a market dominated by a small number of giant players, and that means higher premiums, less choice, and greater risks for consumers.”