Competitor regulator launches probe of RAC’s $1.35 billion insurance sale to Insurance Australia Group

The competition regulator has kicked off its review of the proposed sale of the RAC’s insurance arm to Insurance Australia Group, with a decision expected in early September. The Australian Competition and Consumer Commission on Wednesday invited submissions from interested parties on how the $1.35 billion deal would impact competition in WA’s general insurance market. The sale can’t go ahead without the approval of the ACCC, which a month ago waved through IAG’s purchase of the Queensland RAC’s insurance business. The WA motoring mutual is the State’s biggest general insurer through RAC Insurance, which was set up in 1947 to provide affordable car insurance to its members. As of last year, the business accounted for about 55 per cent of the State’s motor insurance market and 34 per cent of its home and contents market. However, announcing the IAG deal last month, the RAC said it was becoming increasingly difficult for State-based insurers to meet rising global re-insurance costs and higher car and home repair costs. The agreement provides for the RAC to pocket $400m from the sale of the insurance business, and a further $950m over 20 years by pushing its branded insurance products through the IAG, which would assume responsibility for underwriting, claims management and pricing. The ACCC said on Wednesday the scope of its review would include how the RAC and IAG competed in general insurance in WA, and the impact of the acquisition on premium prices and repair services. The Motor Trades Association of Australia has already condemned the proposed sale, claiming it “marks the beginning of the end for locally owned, motoring club-based insurance in Australia”. The MTAA last month called on the ACCC to reject both the RACQ and the RAC WA deals, arguing they would result in less choice and higher premiums for motorists, increased pressure on independent repairers and declining service standards and diminished consumer protections. The submissions close on July 2, with the ACCC expected to announce on September 4 whether it has concerns over the tie-up.