Protests against
IAG’s proposed acquisition of
Lumley are snowballing from players both large and small with the Commerce Commission deadline still over six weeks away.
Tower Insurance CEO and executive director David Hancock told
Insurance Business their biggest concern was the concentration of risk in the hands of one large player.
He said the company was ‘going through the processes’ of making their submissions. “It’s really up to the regulators and different stake holders how the landscape looks for New Zealand, but as an active participant in the market we want to put our views out there.
“It’s quite clear that some of our concerns are resonating with different people and we’ll see where that takes it.”
Hancock said he was confident in Tower’s ability to compete with any industry changes in the short term but the longer term effects were more worrying.
“We think we can compete very well but our concerns in the likelihood of a big event and the higher concentration in the hands of one big participant, that does make it harder for other players to compete.
“In the longer term it’s in the best interests of the country to have a very competitive insurance market but we believe this proposal could lead to a lessening of competition.”
He said it wasn’t just the chances of another Christchurch earthquake happening, people had to think on a global scale as well.
“What if another GFC (global financial crisis) happens? If most of the banks’ mortgages are insured by one company? There’s a large reliance on a non New Zealand company providing an essential service.”
Hancock said he was confident IAG would respond to the concerns appropriately.
IAG currently owns the
NZI,
AMI, and State brands, which together make up 40 percent of the $5 billion New Zealand insurance industry.
Owning Lumley would boost IAG’s market share to over 50%. The Productivity Commission has recently issued its second interim report on improving productivity in the services sector, recommending strengthening the Commerce Act to prevent abuses of market power.
Green Party co-leader Dr Russel Norman has appealed for the Government to act, warning premiums will rise and the profits will go offshore.
“The Government needs to listen to the Productivity Commission's recommendations on boosting competition in service industries. In particular, improving section 36 of the Commerce Act to restrict the exercise of market power would help to prevent situations where industries become dominated by a single player, as is happening in insurance,” said Dr Norman.
“It’s not healthy for industries like insurance to be overwhelmingly dominated by a single company; the Government needs to strengthen competition law to ensure families and businesses get fair prices,” he said.
“If IAG becomes the owner of the majority of the New Zealand insurance industry, the decrease in competition could result in higher premiums for customers and bigger profits for IAG’s offshore owners.”
Meanwhile, smaller players such as Allied Insurance Group are resigned to the changes being inevitable, despite making their submissions via the Insurance Brokers Association of New Zealand (
IBANZ).
Allied CEO
Bruce Oughton said their biggest concern was the reduction of competition particularly in commercial motor.
“Unlike domestic where the banks and direct players are involved there’s certainly a limited market in commercial motor, and so then what it also may do to a reduction in capacity for material damage (is a concern.)” he said.
“I still think it will go ahead so then we’ve got to make the best of the world we’re in commercially.”
An IAG spokesperson said: “IAG is confident it can obtain the required regulatory approvals and is working closely with regulators to ensure successful completion of the transaction.”
The Commerce Commission is due to decide on 28 March.
