SA-based RAA is selling its underwriting operations to Allianz Australia in a $642 million transaction following a similar deal announced between RACQ and IAG, and as WA’s motoring group also reviews its insurance arm.

Allianz will underwrite the general insurance policies, excluding travel, and manage claims under the RAA brand, while the two groups have also struck a 20-year distribution arrangement. About 270 of the motoring group’s employees will transfer to the Allianz Adelaide team. 

“We were strongly drawn to partner with RAA due to its compelling strategy and platform for growth, the underlying quality of the business, and the relative stability and profitability of the insurance market in South Australia,” Allianz Australia MD Richard Feledy said.

IAG a few days earlier announced plans to acquire RACQ Insurance for $855 million, with a 25-year distribution agreement, while WA’s RAC has confirmed a strategic review of its insurance business is under way as it looks to improve services for members.

RAA CEO Nick Reade says the partnership with Allianz will enable the motoring group to reduce its exposure to risk, rebuild its balance sheet and deliver more value for its 825,000 members.

“The driving principle was to develop a long-term model for insurance that was better for our members and our people – and this partnership delivers that,” he said.

“RAA is a local insurer, and it’s become increasingly difficult to shield our members from the global challenges in the insurance industry.”

The transaction is expected to be completed in the middle of next year, subject to regulatory approval.

Macquarie Equity Research says the moves may reflect rising pressure on motor clubs as financial services become increasingly regulated, with capital charges rising for the clubs as their market shares grow, pricing becoming more granular and reinsurance scarcer. They are also looking to invest in electric vehicle infrastructure.

“The heart of a motor club is to provide services to their motor enthusiast customers. Over time, the insurance arms have become a material part of group earnings, and now with dominant market shares, this has brought additional regulatory attention,” Macquarie says in a research report.

“We see the EV rollout as an investment opportunity for the Australian motor clubs, but also a chance to diversify away from financial services.”

Sydney-based IAG owns NRMA Insurance and has a joint venture with RACV in Victoria.

In Tasmania, Suncorp sold its 50% stake in RACT Insurance for $83.75 million in 2021 amid plans to simplify its business, giving mutual motoring body RACT Group full ownership.