Insurance Australia Group hits major competition setback over its $1.35b deal for WA’s RAC Insurance

Insurance Australia Group (ASX: IAG) has hit a major setback from the competition regulator over its planned $1.35 billion acquisition of RAC Insurance from The Royal Automobile Club of Western Australia.

The Australian Competition and Consumer Commission (ACCC), which first raised concerns in September about the impact on insurance premiums, says that a detailed investigation has led it to conclude the deal is likely to substantially lessen competition for both motor vehicle and home-and-contents insurance in Western Australia should it proceed.

But IAG has immediately challenged the claim, with CEO Nick Hawkins arguing that the alliance will “enhance the RAC member experience and ensure greater resilience to industry challenges for the benefit of Western Australians”.

“IAG and RAC have proven track records of successful partnerships and are committed to delivering competitive and accessible insurance products for all Western Australians,” says Hawkins, in an ASX announcement issued by the company today.

“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.

“This would be made possible by our position as a national insurer, investment in technology capabilities and strong capital management.

“Together, we would also continue to invest in initiatives that support local communities and provide benefits to RAC, its members and Western Australia.”

However, the ACCCC sees both RAC Insurance, through RAC WA. and IAG’s NRMA Insurance business among the major insurance brands operating in WA.

The regulator says RAC Insurance, as the market leader in both motor vehicle insurance and home-and-contents insurance in the state, goes head-to-head against IAG as one of the two largest personal insurers in Australia and a strong performer in the sector across the state.

The acquisition would give IAG a market share of 55 to 65 per cent in motor vehicle insurance and between 50 and 60 per cent of home-and-contents insurance in WA.

“We concluded that the proposed acquisition would eliminate the significant competition between IAG and RACI, and reduce the competitive pressure they each place on rival insurance brands,” says ACCC chair Gina Cass-Gottlieb.

“We concluded that the acquisition would be likely to allow IAG, after acquiring RACI, to increase premiums and reduce the quality of its suite of insurance products, with likely flow-on effects to the offerings of other insurers.”

The concerns raised by the ACCC are similar to those when IAG was looking to acquire RACQ Insurance in Queensland for $855 million in November last year.

That deal was eventually approved by the ACCC in May this year after the regulator concluded that there was sufficient competition in the state.

However, the ACCC says in the RAC Insurance investigation it considered the level of competition from major providers such as Suncorp, Allianz and QBE, and mid-tier insurers Auto & General, Youi and Hollard.

The ACCC says although these insurers compete in WA, they may not be able to fight the might of a merged IAG and RAC Insurance.

“Given the historical difficulties rivals have had growing their share in Western Australia, the ACCC is concerned that IAG would face insufficient competitive constraints post-acquisition,” says Cass-Gottlieb.

The ACCC also considered the financial viability of RAC Insurance as a stand-alone entity should a deal not proceed. This took into account factors such as the rise in extreme weather events, as well as increases in reinsurance, claims and regulatory costs.

“Our investigation found that RACI remains a strong and profitable competitor and is adequately positioned to manage these challenges,” says Cass-Gottlieb.

“We have concluded that if IAG doesn’t acquire RACI, RACI would have the capability to continue to compete effectively in Western Australia in the future.”

In respect of IAG potential power to restrict competing insurers’ access to repair services should the acquisition proceed, the ACCC says it found limited evidence to suggest the insurance major would have either the ability or incentive to engage in such conduct.

IAG plans to lodge an application with the ACCC to assess the acquisition under the new mandatory merger control regime, which will take effect on 1 January 2026.