The planned sale of Western Australia’s biggest insurer RACWA to an east-coast based industry giant has raised major alarm bells at Australia’s competition watchdog.

In a deal worth about $1.3 billion, RACWA plans to sell its entire insurance operations to the Sydney-based IAG.

The Australian Competition and Consumer Commission (ACCC) said that was likely to dramatically reduce competition in WA’s insurance sector.

The watchdog also warned vehicle and home owners would be at risk of unwarranted increases in premiums, reduced insurance options, poorer coverage, while insurers could lose access to accredited repairers.

An RAC membership card

The ACCC is concerned the sale will reduce competition and increase premiums for members. (ABC News: Jake Sturmer)

In a statement, ACCC Commissioner Philip Williams said the proposed acquisition would substantially lessen competition in both the supply of motor insurance and home and contents insurance.

“RAC competes strongly in Western Australia with its well-recognised brand and focus on customer service,” Dr Williams said.

“We are concerned that the acquisition would increase concentration in an already highly concentrated market.”

IAG defends deal

In response, IAG acknowledged the ACCC’s views but defended the proposed sale.

RACWA sells insurance operations to IAG

RACWA has announced a 20-year deal with insurance company Insurance Australia Group, handing over its entire insurance underwriting business.

It said it had already been working with the ACCC to address the issues raised, with a final decision expected on November 27.

“We are committed to partnering with RAC to serve and protect more Western Australians and welcome the further consultation that will now occur,” IAG CEO Nick Hawkins said.

The Motor Trades Association of Australia (MTA) said there were a host of potential drawbacks to the deal.

In addition to the issues raised by the watchdog, Interim Executive Director Rod Camm said the MTA was concerned about local jobs. 

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“Whilst there’s been some guarantees over local employment of the important staff in the RAC insurance arm, we think there’s a real risk that over time that would be consolidated back to the corporate office,” he told ABC Radio Perth.

He said although the MTA raised a number of concerns in a submission earlier this year, the ACCC’s statement was largely unexpected.

“In a sense this is a surprise, but it’s a really important one because the RAC insurance arm in Western Australia is already a significant component of the market, and we think it would have a significant impact.”

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