The Australian Competition and Consumer Commission (ACCC) has formed a preliminary view that IAG's proposed acquisition of RAC Insurance (RACI) is unlikely to deliver a net public benefit.
In a Public Benefit Assessment summary published to its acquisitions register yesterday, the regulator said: “Based on the material before it, the ACCC's preliminary view is that there is unlikely to be a net public benefit from the Acquisition as the public benefits are likely to be outweighed by the detriment to the public.”
The assessment responds to the public benefit application IAG lodged last month after the ACCC determined in September that the acquisition must not be put into effect on competition grounds. The deal would see IAG acquire 100% of the issued share capital in RACI and enter a 20-year exclusive distribution and brand licensing agreement under which RACWA Holdings continues selling RAC-branded insurance in Western Australia, a structure set out in full on the ACCC acquisitions register entry for the RAC Insurance case.
The ACCC accepted that the transaction would produce some gains. “The ACCC's preliminary view is that there are likely to be some public benefits from the Acquisition,” the document states, before adding that the parties “have likely overstated the magnitude of the benefits and have underestimated the time required for their realisation.”
The regulator was most critical of how IAG modelled its claimed productive efficiencies. “The calculations provided by the Parties are likely to overstate the quantum of the benefits as the estimates provided do not compare the likely position with the Acquisition with the likely state without it,” the assessment says. It also questioned whether integration costs had been offset against the claimed savings.
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On financial resilience, the ACCC conceded the deal would give RACI access to a larger reinsurance program and reduce the chance of needing capital injections or government assistance after a catastrophe. It did not treat that as decisive, concluding the benefit “is not a significant public benefit given the low probability of such events occurring, and RACI's strong existing reinsurance and capital position.”
Claimed regulatory compliance savings received similar treatment. The parties “have not provided sufficient detail about those savings,” the ACCC said, adding that RACI “is likely to continue to manage its compliance costs and remain competitive without the Acquisition.”
The community investment case also failed to persuade. Any increase in funds available to RAC was “unlikely to constitute a significant public benefit because RAC currently funds a number of activities and programs and is likely to continue to do so in the future without the Acquisition,” the regulator found, applying the same reasoning to IAG's own commitments.
Central to the assessment is the ACCC's view of what happens if the deal does not proceed. Its preliminary position is that “RACI will continue to operate as a stand-alone insurer in the future without the Acquisition because it is a financially stable and profitable insurance business that is appropriately managing its capital position.”
On that basis, the regulator treated the competition harm as enduring rather than transitional, stating that “in the absence of the Acquisition, RACI would be an independent competitor to IAG, under RAC Group ownership in the short to medium term.” That position has held since the regulator blocked the RAC Insurance acquisition in September.
IAG's application was accompanied by a proposed section 87B undertaking with a term of 10 years. Commitments included the sale of renewal rights to the active NRMA home and motor insurance book in Western Australia, smash repairer access and conduct obligations, maintenance of a Western Australian contact centre, extension of RAC-branded home and contents insurance to eligible homes north of the 26th parallel, and a dedicated Western Australian Community Fund.
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The ACCC was unconvinced. The undertaking “in its current form, is unlikely to address these competitive detriments,” it said, finding the renewal rights sale carries “material execution risk, uncertain customer retention and inadequate post-sale protections, limiting confidence that it would establish or strengthen an independent provider capable of providing an enduring competitive constraint.”
The optional transfer of the SGIO brand and the behavioural commitments “do not materially change this assessment,” the document adds. On smash repair, the access and conduct commitments “do not replicate the competition between IAG and RACI as independent purchasers of repair services.”
The geographic expansion offer drew a similar conclusion, with the ACCC noting IAG already operates north of the 26th parallel, “so there is no increase in competition.”
IAG said it acknowledged the assessment but rejected its conclusion.
“IAG remains confident that the strategic alliance will deliver a range of long-term benefits for members, customers and communities across Western Australia, and disagrees with the preliminary view expressed by the ACCC,” the insurer said in a statement authorised by CEO Nick Hawkins (pictured).
The company said it would continue to engage constructively as the process progresses.
IAG must respond to the regulator by December 1 2026 and a determination is due by February 1 2027. Merits review applications filed with the Australian Competition Tribunal by IAG and by RACWA Holdings last month are stayed while the public benefit application is considered.
