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Competition in the home and contents insurance market is unlikely to be damaged by IAG’s proposed acquisition of Wesfarmers’ insurance underwriting business, according to the Australian Competition and Consumer Commission.
The ACCC announced last week that it would not to oppose the planned amalgamation of Australia’s fifth and sixth largest insurance underwriters as it did not believe the deal would “substantially lessen competition in any insurance market”.
Wesfarmers underwrites Coles Insurance, which offers home and car insurance to consumers through Coles supermarkets and online. It also underwrites rural and commercial insurance through Wesfarmers Federation Insurance and Lumley.
IAG underwrites policies, including home, contents and other personal insurance, sold through NRMA, SGIO, SGIC, RACV, CGU and Swann. IAG’s Australian operations also distribute commercial and rural insurance products.
Following an acquisition, Coles would continue to offer insurance to consumers underwritten by IAG in accordance with a 10-year distribution agreement.
In making its decision, the ACCC noted that insurance sold through Coles was a “small but growing” market but it was likely that the banks and ‘challenger’ brands such as Woolworths would step into the market to provide strong competition on price so consumers would not be disadvantaged.
The ACCC’s lack of concern over competition in home and contents insurance is supported by the findings of a recent study, the 2013 General Insurance Barometer by JP Morgan and Taylor Fry.
The study, released in February, forecast home and contents insurance premiums would increase by single digits this year, compared to double-digit increases in the past two years partly due to competition within the sector.
The report found that 38% of general insurance underwriters, and 43% of general insurance brokers, were worried that their businesses could be challenged by excessive competition.
The ACCC approval of IAG’s acquisition of Wesfarmers’ insurance brands removes a key hurdle to the deal, although the Australian part of the transaction is still subject to approvals from the Australian Prudential Regulation Authority and the Federal Treasurer. In New Zealand, the deal must be approved by the New Zealand Commerce Commission and The Reserve Bank of New Zealand.
IAG announced in December last year that it had agreed to buy Wesfarmers’ insurance underwriting business for $1.845 billion. The transaction is expected to be completed by June 30 this year.
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