Why analysts believe the competition watchdog will block IAG’s WA deal

The Royal Automobile Club of Western Australia has steadily been gaining market share in the insurance market. Picture: iStock

Analysts at Jarden believe that Insurance Australia Group will face more challenges gaining clearance from the competition watchdog for its latest Western Australia acquisition compared to that in Queensland last year.

IAG agreed this month to pay about $1.35bn for the Royal Automobile Club of Western Australia’s insurance business and the deal is expected to face heavy scrutiny from the Australian Competition & Consumer Commission after it already agreed to buy 90 per cent of the RACQ’s insurance business for $855m.

The ACCC cleared the Queensland transaction, but the analysts have mounted an argument as to why its view could be quite different when it comes to WA.

The Western Australia transaction will add $1.5bn of gross written premium to IAG and offer access to its 1.3 million members while creating $100m of pre-tax synergies.

RACWA has a 60 per cent market share in the state.

Jarden analysts said in a research note that while the ACCC opted not to oppose the Queensland deal, RAC has been a far stronger competitor in the Western Australia market given its track record of market share gains.

This compares to Queensland where market share growth has been stagnant since 2019, which was consistent with ACCC commentary, saying that RACQ was not considered a “vigorous competitor”.

“In contrast, RAC has been able to grow substantially above market, driving about a 15 percentage point increase in market share, from about 35 per cent in 2019 to about 50 per cent in 2024,” Jarden said, referring to the WA business.

RAC WA pricing appeared to be competitive, although the ACCC noted that RACQ’s premiums were “generally higher” than suppliers, Jarden said.

“Given WA’s geographic isolation, we see a stronger likelihood of the ACCC considering WA as its own market.”

The underbidder for RAC WA was Allianz, which is set to buy the Royal Automobile Association of South Australia insurance business, pending regulatory approvals, so concentration of the market as a whole could be an issue if that was the approach that the market took.

Jarden said spot checks suggested that RAC WA’s pricing was broadly in line with IAG and Suncorp across the key motor and home products.

The ACCC was now also applying closer focus to acquisition concerns, with the new merger guidelines, effective 2026, requiring assessment of the cumulative impact of acquisitions.

Jarden analysts said that they also saw heightened risks for the RAC approval due to this, following the rapid consolidation in the motorclub sector, including RAC, RACQ and Royal Automobile Association of South Australia.

The ACCC, under Gina Cass-Gottlieb, is taking a tougher stance on market concentration, and the insurance industry is front of mind amid higher living costs, when essential household bills, such as insurance, are increasing annually.

On Thursday, the ACCC said it had preliminary concerns over Elders buying rival Delta Agribusiness for $475m, with it leading to higher prices or reduced quality in the supply of rural merchandise.

Both supply rural merchandise such as agricultural chemicals, seed, fertiliser, animal health products and related services, such as agronomy services, through their retail networks.

They also both supply rural merchandise to wholesale customers in Western Australia.

Barrenjoey advised RAC WA, while IAG was advised by Goldman Sachs.