The mergers watchdog says IAG’s proposed acquisition of WA’s RAC Insurance could “substantially lessen competition” – and the application will now proceed to a more detailed second-phase review.

The Australian Competition and Consumer Commission last year rejected the $1.35 billion deal, but IAG reapplied under the new merger control regime that launched in January.

However, the ACCC, which could have approved the deal after phase one, today launched a further review and consultation.

“This acquisition would combine two of the biggest insurers in WA,” commission chair Gina Cass-Gottlieb said.

“RACI is WA’s market leader both in motor vehicle insurance and in home and contents insurance.

“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.”

The ACCC is also considering the acquisition’s impact on smash repair services.

IAG says the phase-two review, which should take up to 90 business days, is in line with ACCC processes where the first phase identifies “potential concerns”.

“IAG remains confident in its position and will continue to work constructively with the ACCC,” the company said today.

The regulator says it has “not reached a conclusion on the issues” and will continue to consider the acquisition in the phase-two review.

When the new merger regime was launched, the ACCC said it expected to conclude about 80% of acquisition applications in 15 to 20 days through early phase-one decisions or notification waivers.

The ACCC’s decision notice can be read in full here. The deadline for submissions is May 4.