Industry reacts to IAG’s approval to acquire Lumley

Industry reacts to IAG’s approval to acquire Lumley | Insurance Business

Industry reacts to IAG’s approval to acquire Lumley
While the champagne bottles are no doubt chilling over at IAG now that this ‘significant step’ in their bid to acquire Lumley has been reached, other industry representatives have expressed their disappointment and grave concerns on the effects the decision will have on the industry.

Philip Toohill, general manager of Multisure, who put in a submission to the NZCC against the acquisition, said it was very difficult to rationalise the decision.

“The massive market imbalance that will now be created by allowing this transaction will have a major negative impact on competition in the domestic and commercial insurance markets.

“NZ is such a small pool when it comes to availability and choice and this purchase could now result in an adverse tipping point for consumers and insurance brokers alike.

“It is certainly doubtful that new entrants, banks and existing companies will be able to have a desirable outcome in respect to pricing, competition and services.”

He felt that from Multisure’s perspective, with their concentration of heavy motor clients, it would have been better for those clients to have wider choice with Lumley General in the control of another insurer or investor other than IAG.

“Limited specialist heavy motor insurers in the market is of grave concern to us,” he said, adding with some resignation: “It will be interesting to see how this will all pan out but regardless life goes on and we must adjust.”

IBANZ CEO Gary Young said he was concerned none of the competition and capacity issues that had been raised in their submissions to the commission appeared to have been addressed.

“Our members saw significant issues around the loss of competition and capacity to handle major risks,” he said. “They were also very concerned by the challenge to the future structure of the market in having a single company responsible for the protection of over half of New Zealand’s insurable assets.

“The dominance of IAG coupled with the 25% share by the next largest player in the market, Vero, creates a potential duopoly situation.

“This is a particular issue for those of our members in an areas more exposed to natural disasters, which is the greater part of New Zealand.

“We are of the opinion that the customer’s ability to secure alternative options will be materially affected in many areas. The ability or willingness of others in the market to provide capacity in difficult areas of risk is very uncertain.”

While Young was keen to praise IAG’s ‘significant commitment’ to New Zealand as demonstrated following the Canterbury earthquakes, he said it boiled down to too many eggs in one basket.

“The avoidance of such a concentration of risk is a fundamental principle of insurance.

“In the New Zealand market, the risks are high and the premium pool is small, which makes it vulnerable.

“This decision has not addressed the challenges posed by this acquisition for our members and their clients.”

Vero spokesperson Vasantha Naidoo said, “We respect the Commerce Commission’s decision".
“Vero is also well advanced with a strategy to manage the major changes impacting general insurance across New Zealand.”

Meanwhile Wesfarmers’ managing director Richard Goyder welcomed the decision by the NZCC. “We believe [the decision] is in the best interests of our shareholders while offering the customers of our underwriting businesses the opportunity to become part of an established leading insurance organisation.”

IAG NZ’s CEO Jacki Johnson told Insurance Business they welcomed the approval from the NZCC and were looking forward to the successful completion of this transaction. 

“Both Lumley and our own intermediated business, NZI, have well-established competitors in New Zealand and our view has always been that the increment to IAG’s personal and commercial lines business from the transaction will not substantially lessen competition.

“Lumley in New Zealand has complementary strengths to our existing NZI business and I see a tremendous opportunity for us to build on these strengths to broaden our offering to our customers and partners.”

The sale still remains subject to a number of conditions including approvals from the Australian Prudential Regulation Authority, the Federal Treasurer and the Reserve Bank of New Zealand.

The Australian Competition and Consumer Commission announced in March that it would not oppose the acquisition, as did the NZ Overseas Investment Office.

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IAG gets the green light