Competitors will challenge IAG if it raises prices or cuts services following its takeover of Lumley New Zealand, the country’s Commerce Commission says.

The competition regulator approved the takeover last month despite strong opposition from brokers, other insurers and service providers, who argue IAG will cover more than half New Zealand’s assets.

IAG’s acquisition of Wesfarmers’ trans-Tasman underwriting assets cleared the final New Zealand hurdle last week, with approval from prudential regulator the Reserve Bank.

And on Friday the Commerce Commission published the reasons for its approval.

It says brokers were concerned the major insurers covering the SME market – IAG, Lumley, Vero and QBE – would reduce in number to three.

But it says QBE and Vero have the incentive and ability to expand if IAG tries to raise prices or reduce service.

“We consider this is sufficient to satisfy us that there is unlikely to be a substantial lessening of competition for SME customers.”

It says there will be limited aggregation in commercial lines such as property and professional liability.

The greatest aggregation will be in commercial motor vehicle insurance, including heavy commercial vehicles, where IAG will have more than 50% market share.

But the commission says this will not reduce competition because Vero, Allianz and Zurich operate in that market and QBE could do so.

IAG is unlikely to profitably increase prices or cut quality in personal lines.

Lumley “has only a minor existing involvement in direct sales of personal insurance products”, so there will be no material change to that market.

Although Lumley underwrites Westpac insurance, banks still have at least two credible options in Vero and Tower, which write for ANZ and Kiwibank respectively.

The commission says IAG will not gain enough buying power to reduce collision repair prices.

Treasurer Joe Hockey and the Australian Prudential Regulation Authority still have to approve the takeover in Australia.