IAG will apply to acquire RAC under a new merger assessment regime after the competition watchdog last week opposed the deal.

The Australian Competition and Consumer Commission found the proposed acquisition would eliminate “significant competition” between the two insurers, and RAC was well placed to continue independently. 

But IAG CEO Nick Hawkins says the alliance would enhance the RAC member experience and ensure greater resilience to industry challenges for the benefit of people in WA. 

“IAG and RAC have proven track records of successful partnerships and are committed to delivering competitive and accessible insurance products for all Western Australians,” he said. 

“As part of the alliance, we have committed to staying local, investing in enhancements to the RAC member experience and continuing to deliver high-quality and competitive insurance products and services.” 

JP Morgan says in a research report that it understands IAG is required to lodge the application again under the new merger regime – which starts on January 1 – before it can appeal to a tribunal. 

“The distinction to note under the new regime is that it allows for a public benefits test, which theoretically is not there under the current regime,” it said.  

“However, we would still be surprised if ACCC were to reach a different conclusion under the new regime given the facts and issues remain the same.” 

The ACCC says the deal would give IAG market shares in WA of about 55%-65% in motor and about 50%-60% in home and contents. 

The regulator found other insurers, including Suncorp, Allianz, QBE, Auto & General, Youi and Hollard, would be unlikely to prevent the significant loss of competition. 

“Given the historical difficulties rivals have had growing their share in WA, the ACCC is concerned that IAG would face insufficient competitive constraints post-acquisition,” commission chair Gina Cass-Gottlieb said. 

But the regulator found limited evidence to suggest the deal would allow IAG to restrict competitors’ access to repair services. 

The Motor Trades Association of Australia says the findings recognise the risks of further consolidation in an already highly concentrated motor market. 

“Already this year, Australia has seen two major acquisitions approved – IAG’s takeover of RACQ Insurance in Queensland and Allianz’s purchase of RAA Insurance in SA,” interim executive director Peter Jones said. 

“If this deal had proceeded, three long-standing member-based insurers would have disappeared in less than 12 months.”