RAC presses ahead with $1.35 billion insurance sale to IAG despite ACCC ban, threat of higher premiums

The RAC will press ahead with the $1.35 billion sale of its market-leading insurance business to ASX-listed east coast giant Insurance Australia Group even though the competition regulator has ruled it a threat to WA households. Despite last-minute entreaties by the two groups, the Australian Competition and Consumer Commission on Thursday said it would block the sale on the grounds it would likely seriously diminish competition in the State’s home and motor insurance markets and send premiums higher.. “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.” ACCC chair Gina Cass-Gottlieb said. However, Sydney-based IAG isn’t giving up, flagging it will ask the ACCC to reassess the purchase under the regulator’s new mergers regime, which comes into effect on January 1. The new system will allow the ACCC to approve deals that have been opposed on competition grounds if it believes the anti-competitive effects are outweighed by the public benefits of the transactions. The RAC said it supported the IAG move, despite Thursday’s announcement. “While we are naturally disappointed with this outcome, we acknowledge the role of regulators and the process undertaken,” the motoring mutual said. “We still believe the proposed partnership has merit and would be beneficial for our teams and members.” The RAC said chief executive Rob Slocombe was unavailable for comment. However, in response to questions put by The West Australian about the benefits of a tie-up, it said IAG “has the experience to support RAC in the supply of competitive insurance for all our members, ensuring they have access to local expertise and market-leading contact centres, while continuing to invest in RAC’s technological initiatives”. The ACCC had been looking at the proposed sale since June, extending its review by two weeks in September to consider last-minute submissions by the RAC and IAG. However, having previously raised concerns about the deal, the regulator determined that the IAG purchase would seriously reduce competition in WA’s home and motor insurance markets, where the RAC is the market leader. IAG already has a presence in WA through its NRMA brand, having transitioned customers away from the now defunct SGIO, which was bought in 1998 and later closed. The ACCC has this year waived through similar insurance sales by motoring mutuals in Queensland and South Australia to IAG and Allianz respectively, but the RAC’s stronger position in WA was always going to present bigger competition hurdles. The ACCC said on Thursday the WA purchase would give IAG a share of about 55 to 65 per cent of the State’s motor insurance market and 50 to 60 per cent of the home and contents insurance market. ““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,” Ms Cass-Gottlieb said. The ACCC review included scrutiny of the level of competition provided by other insurers in WA, including Suncorp, Allianz, and QBE, and mid-tier insurers Auto & General, Youi, and Hollard. It concluded they would be unlikely to prevent the significant loss of competition that would likely result from the proposed acquisition. “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,” Ms Cass-Gottlieb said. She later told The West Australian that under the new mergers regime, the ACCC would have 120 days to reassess the IAG purchase again on competition grounds. If rejected once more, IAG could then apply to push the deal through on “public benefit” grounds. If that fails, it could appeal to the Australian Competition Tribunal. “They will put different evidence in, I’m sure,” Ms Cass-Gottlieb said, adding that it may not be enough to argue under the public interest test that that the combined business would be more competitive. Despite the RAC citing rising reinsurance and repair costs as a major factor in its decision to offload its biggest business, the ACCC said the group was best placed to provide competitive insurance to WA motorists. “The ACCC considered the challenges faced by the insurance industry, and how these challenges may affect RACI, including the growth in the number of extreme weather events over time and rising reinsurance, claims, and regulatory costs,” Ms Cass-Gottlieb said. “Our investigation found that RACI remains a strong and profitable competitor and is adequately positioned to manage these challenges,” she said. “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.” The RAC insurance business racked up a record $290 million profit before tax for the 2025 financial year off the back of $1.45 billion in premium sales. The IAG agreement, struck in May, provides for the RAC to pocket $400m from selling the insurance business, and a further $950m over 20 years by pushing its branded insurance products through IAG.