IAG plan raises competition issues

Last updated 13:50 30/01/2014

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Many competition issues will need to be considered as IAG plans to buy New Zealand rival Lumley General Insurance New Zealand, the Commerce Commission says.

The proposal follows IAG's wider offer for the insurance arm of Lumley's Australian parent, Wesfarmers, last month. The A$1.85 billion (NZ$1.97b) acquisition would reportedly make IAG the largest insurer in Australia.

In New Zealand, Wesfarmers would retain ownership of industry short-term financier Lumley Finance and insurance broker Crombie Lockwood.

Both insurers compete in personal and commercial insurance, though Lumley sells insurance through intermediaries such as banks and brokers. IAG supplies most of its products through the State, AMI and NZI brands.

The commission's key focus in examining the deal will be on the likely impact on New Zealand's underwriting business, although retail insurance is also on its radar.

There were overlaps in several categories, including private and commercial vehicle insurance, house and contents, marine insurance and commercial property cover, it said.

In the case of motor insurance, the commission said it would look closely at the impact in the collision and auto-glass repair sectors.

The commission also needed to be assured about the effect on insurance in geographic areas, such as post-earthquake Canterbury.

IAG says the merged entity will still face considerable competition in personal and commercial insurance from "large, well established existing competitors, various smaller competitors and from retail banks".

There was a "significant degree" of competition from overseas for larger commercial insurance contracts, it said.

The commission would weigh up whether competitors would be able to expand to compete, and whether retail banks and brokers wielded significant power of their own, as IAG claims.

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- Fairfax Media


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