Industry reacts to Wesfarmers and Gallagher deal

Industry reacts to Wesfarmers and Gallagher deal | Insurance Business

Industry reacts to Wesfarmers and Gallagher deal

The sale of Wesfarmers’ broking and premium funding businesses to Arthur J Gallagher has been met with praise from the insurance industry, who trust the new owner will take the operations from strength to strength.

Although the deal effectively means Wesfarmers is exiting insurance after almost 100 years, market observers have the utmost faith in its new owners Arthur J Gallagher and IAG, which is to buy Wesfarmers’ underwriting arm.

Steadfast CEO and managing director Robert Kelly told Insurance Business: “Gallagher will do a great job with the operations. It’s exciting for the Australian insurance industry that a company as well run as Gallagher wants to invest here. We think it is great. It stabilises the industry by having a strong player in it. I am sure that they will be a great addition to the broking market in Australia. It will give them the scale they have lacked in Australia."

John Elliott, director of Elliott Insurance Brokers, said: “OAMPS has been and will continue to be a large contributor and performer in the Australian broking market, as far as I see the ultimate ownership will have minimal effect on their consistent performance.”

He admitted that it is “sad to see a company which has made such a valued contribution to the Australian insurance market in so many ways withdraw completely from the industry”, but added IAG would make a significant contribution to the industry: “I for one am very excited about the technology and offering IAG will contribute to Wesfarmers range of products.  IAG would have to be the insurer that is streaming so far ahead of the rest in regards to embracing a new era in the way our clients can interact with us; the possibilities of what they could do from here has me very excited.”

A well-placed source said it made sense for Wesfarmers to sell both broking and premium funding operations to the same buyer as they are linked. He also said that as broking is not the company’s core, it made sense to sell the broking business, and at the same time dispose of the premium funding business line.

“Premium funding businesses require capital and if you are not participating that industry then why would you put your capital into premium funding. However, it is pleasing that it is not disappearing.”

He added: “Broking is not core to its business. Wesfarmers will make somewhere between $850m and $1bn profit. If you can buy anything and a few years later make a $1bn profit it’s not bad. Wesfarmers has had the broking arm for a while. Broking is a very competitive sector so I guess if you are in a competitive sector and you don’t think you can get bigger scale without major acquisitions and you are in, some ways, struggling to pull it out, it makes sense to give it to others who see more value in it. That’s how business works.”