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Insurance Australia Group’s (ASX: IAG) planned acquisition of the insurance business of Royal Automobile Club of Western Australia (RAC) has been hit with regulatory concerns that the deal could lead to higher premiums.
IAG is acquiring the RAC Insurance business as part of a $1.35 billion deal that comprises $400 million for control of RAC Insurance and $950 million for an exclusive 20-year distribution and brand licensing agreement for IAG to provide general insurance products and services for RAC members and Western Australians.
The deal will see IAG underwriting motor vehicle insurance and home and contents insurance under the RAC brand, which the ACCC says could reduce competition in the supply of insurance services in the state.
“RACI is the leading provider of both motor and home and contents insurance in Western Australia and has a significantly larger market share in each compared to any other insurer,” says ACCC commissioner Dr Philip Williams.
“RACI competes strongly in Western Australia with its well-recognised brand and focus on customer service. It also appears likely to continue to compete strongly in the future, if the proposed acquisition does not eventuate.
“We are concerned that the acquisition would increase concentration in an already highly concentrated market.”
The ACCC previously raised competition concerns about the $855 million acquisition by IAG of RACQ Insurance announced last year, but the regulator gave the deal its blessing in May this year after declaring there was enough competition in the Queensland market.
RAC has 1.3 million members across Western Australia and the exclusive agreement will give IAG access to a network distributing RAC-branded home, motor and niche insurance products.
Once the deal is completed, the RAC Insurance portfolio is expected to add $1.5 billion to IAG’s gross written premium which stood at $8.4 billion at the end of December last year.
The ACCC says it is concerned that a cut in competition could lead IAG to lift insurance premiums and “reduce the quality of its own and RACI’s motor insurance and home and contents insurance products in the future”.
The ACCC also sees the potential for the merged group to limit access by rival insurers to “quality and cost-effective repairers” in WA or potentially to increase the cost of repair services to rival insurers in the state.
“Accessing repair services, such as smash repairs, windscreen repairs and home repairs, is a key aspect of providing insurance, and restricting access to such services would likely reduce the competitiveness of rival insurers in Western Australia,” says the ACCC.
When announcing the deal in May this year, IAG anticipated the acquisition of RAC Insurance would be completed in the first half of 2026, subject to regulatory approvals.
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