IAG will be allowed to acquire Wesfarmers Insurance New Zealand assets following a decision by New Zealand’s competition regulator.

The Commerce Commission has set no conditions on the acquisition, saying sufficient competition will still exist in the New Zealand market.

In a decision this morning, the commission says it’s satisfied the acquisition “will not have, or would not be likely to have, the effect of substantially lessening competition, for personal and commercial insurance products”.

The $1.845 billion of Wesfarmers’ underwriting business has proved more contentious in New Zealand than in Australia because of the market dominance IAG will gain with the acquisition of the third-largest insurer, Lumley NZ. IAG already owns NZI, State Insurance and AMI.

The Australian Competition and Consumer Commission in March ruled not to oppose the deal but its New Zealand counterpart had to extend the deadline for its decision because of the number of submissions received. Most opposed the acquisition, citing concerns about a lessening of competition.

The commission says Lumley has a small presence in personal home, contents and motor vehicle insurance, “where three main insurance providers (IAG, Vero, Tower) will continue to operate in New Zealand in addition to a number of other companies providing general insurance products”.

“While Lumley’s presence is larger in commercial insurance, as with personal insurance, a number of providers will continue to operate in New Zealand including Vero, QBE, Zurich, Allianz, AIG, Ace and others.

Commerce Commission Chairman Mark Berry says IAG will still need to compete with other insurers on price and quality.

“By their nature all mergers create a larger company with a greater market share. However, that does not mean that a substantial lessening of competition in the market naturally follows. In this case the commission is satisfied competition remains.”

“We have considered submissions from a number of interested parties and we are confident that IAG’s purchase of Lumley will not materially change the provision of services or the ability of customers to shop around, as other companies will be able to expand to replace Lumley’s position,” Dr Berry said.

IAG has argued there will be no substantial lessening of competition.

In December IAG NZ CEO Jacki Johnson told the finance website interest.co.nz that IAG would sell assets to gain approval for the Lumley purchase if it had to.

She would not identify possible divestments, and an IAG spokesman recently told insuranceNEWS.com.au: “We are not contemplating that sort of outcome.”

Insurance Brokers Association of New Zealand CEO Gary Young says he is concerned that none of the competition and capacity issues raised in submissions to the commission appear to have been addressed.

“IAG will have more than 50% of the market,” he told insuranceNEWS.com.au this morning. “Structurally, that certainly isn’t desirable.”

More information in our regular bulletin on Monday.