ACCC approval means IAG’s acquisition of Wesfarmers’ underwriters is on track for a mid-year completion but still faces a major hurdle in New Zealand.
The Australian competition regulator last week announced it would not oppose the $1.845 billion deal, which combines the largest and the fifth-largest insurers in the domestic market.
Its review of the proposal paid special attention to the ramifications in the rural insurance, personal lines and smash repairs sectors but found no evidence for a substantial lessening of competition.
However, IAG has so far given no indication of how Lumley and WFI will be integrated into their new parent company.
An IAG spokesman says it is too soon to comment, given the need for approvals from APRA and the Federal Treasurer.
“It’s premature to address integration planning at this time,” he says.
In New Zealand, the Commerce Commission has deferred its decision on the takeover by a month, until April 30.
IBANZ CEO Gary Young told the Commission the proposal had prompted an unprecedented level of concern among insurance brokers in New Zealand, where IAG and Lumley are the two largest insurers.
“There is a clear, common message from [IBANZ] members,” he says.
“This proposal will adversely affect the operation of the market and have significant negative outcomes for consumers.”
Young says if the merger were to go ahead it would create an unhealthy duopoly, with IAG and Vero controlling more than three-quarters of the market and all remaining players having very small market shares.
He says brokers and consumers already face challenges finding appropriate cover, after the earthquakes of past years, particularly outside of Auckland.
“Companies such as AIG, Allianz, QBE and Zurich are either not writing business in this part of the market or are cherry-picking risks. As a result, Lumley has a been a key option for brokers,” Young says.
“Where an insurer is still willing to underwrite risks their capacity for risk has reduced. It is not unusual to need several companies on a slip to obtain full cover for the commercial SME clients.”
Suncorp has also come out strongly against the deal, painting the transaction as a ‘tipping point’.
“The very high level of concentration in New Zealand that would result from the proposed transaction would well exceed those seen in other insurance markets around the world,” their submission states.
Suncorp also argues that blocking the sale in New Zealand would not retain the status quo but would in fact strengthen the market’s competitiveness, as Wesfarmers would likely divest Lumley NZ to another insurer.
“Such a counterfactual would result in a much more competitive market and a better outcome for consumers compared to the proposed transaction, which would see one insurer with immense scale in New Zealand.”