ACCC Blocks IAG's A$1.35 Billion RAC Insurance Takeover Over Competition Fears

Australia's competition regulator has blocked Insurance Australia Group's proposed acquisition of RAC Insurance, concluding that the deal would likely harm competition in key insurance markets in Western Australia.

The Australian Competition and Consumer Commission announced the decision on Wednesday, following an in-depth phase two review of the transaction, which was first proposed more than a year ago. The deal covered the underwriting business and brand of the Royal Automobile Club of Western Australia.

According to the regulator, combining the two insurers would reduce competition in the supply of motor vehicle insurance and home and contents insurance across the state. ACCC Chair Gina Cass-Gottlieb said the acquisition would bring together two large insurers, producing a substantial rise in IAG's market share and a significant increase in market concentration.

IAG had agreed in May last year to acquire RAC Insurance's underwriting business for A$1.35 billion, a deal expected to add roughly A$1.5 billion in gross written premium to its portfolio.

The ACCC also said it found insufficient evidence that the transaction would give IAG an incentive to limit competitors' access to repair services. It likewise concluded there was not enough evidence to show the deal would substantially lessen competition in the smash repair services market in parts of Western Australia.

In a separate announcement, IAG acknowledged the regulator's decision and said it would pursue public-benefits authorisation, a process that would allow the deal's customer, community and economic benefits to be weighed alongside competition concerns.

IAG CEO Nick Hawkins said RAC would remain local, adding that the company would invest in enhancements to benefit the member experience and continue to deliver high-quality, competitive insurance products and services.

RAC Insurance did not immediately respond to a request for comment. IAG shares fell 2.2% in early trade, touching their lowest level since September 10.