IAG has moved closer to completing its $1.845 billion acquisition of Wesfarmers’ underwriting business after the Australian Competition and Consumer Commission (ACCC) ruled it would not oppose the deal.

The companies have welcomed the decision as they look to complete the transaction by June 30.

“This represents an important step in the sale process, which we believe is in the best interests of our shareholders while offering the customers of our underwriting businesses the opportunity to become part of an established, leading insurance organisation,” Wesfarmers MD Richard Goyder said.

The ACCC says it considered submissions from a number of sectors and focused on markets in which both companies underwrite products, including home and contents, domestic motor, rural insurance and commercial insurance products such as heavy vehicle.

It also examined how the deal could affect competition for the acquisition of key inputs, particularly smash repair and windscreen replacement services. 

“Given the relative sizes of IAG and Wesfarmers in the rural insurance market, the ACCC’s enquiries particularly focused on the likely competitive impact of the proposed acquisition in this market.” 

The regulator says that while the proposed acquisition would reduce the number of key underwriters from six to five for packaged farm insurance and crop insurance in Australia, “the level of existing and potential competition in this market would be expected to constrain the merged firm”. 

It says no farmer or grower representative associations expressed concerns to the ACCC in market enquiries.

For the home insurance and domestic motor insurance markets, the ACCC considered whether the proposed acquisition would remove a vigorous and effective competitor.

Wesfarmers’ underwriting of such personal insurance products sold via Coles is small but growing. 

The regulator says other competitors including banks and “challenger” brands such as Woolworths are likely to have a similar ability to provide strong, price-based competition for home and motor insurance.

It also examined the agreement for IAG to underwrite Coles’ insurance products under a 10-year distribution agreement and decided that, while the proposed acquisition removes an independent underwriter from the market, “at the retail level [it] is unlikely to materially change competitive dynamics”.

New Zealand’s competition regulator, the Commerce Commission, will announce its decision on IAG’s takeover of Wesfarmers-owned Lumley on April 30.

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