The Commerce Commission has granted clearance to IAG (NZ) Holdings Limited to acquire Lumley General Insurance (N.Z.) Limited.

The proposed acquisition forms part of a wider acquisition by IAG’s parent, Insurance Australia Group Ltd, of the Australian and New Zealand underwriting businesses of Wesfarmers Ltd, Lumley’s parent.

The Commission is satisfied that the proposed acquisition will not have, or would not be likely to have, the effect of substantially lessening competition, for personal and commercial insurance products.

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 Dr 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,” said Dr Berry.

A public version of the written reasons for the decision will be available shortly on the Clearances Register.

Background

IAG

IAG is a wholly-owned subsidiary of Insurance Group Limited, an Australian general insurance company listed on the ASX. In New Zealand, IAG offers a range of personal and commercial insurance products, including domestic home, contents, motor vehicle and pleasure craft insurance as well as commercial motor vehicle, property and marine cargo insurance.

IAG supplies the majority of its products under the State, AMI and NZI brands. IAG sells its personal insurance products directly to consumers, primarily through the State and AMI brands. State also offers a range of commercial insurance policies for business customers. However, the NZI brand is used by IAG to sell commercial and personal insurance via intermediaries, such as brokers, banks and motor vehicle dealers. Currently, IAG provides personal insurance products through a relationship with several banks, including ASB and BNZ.

Lumley

Lumley is 100% owned by Wesfarmers Limited, which is an ASX-listed company. Lumley offers a range of commercial and personal insurance products through brokers and other intermediaries, including commercial motor, property, marine and domestic house, contents, motor vehicle and pleasure craft insurance.

In contrast with IAG, Lumley supplies virtually all of its insurance products through intermediaries, including Westpac and other corporate partners.

Substantial lessening of competition

The substantial lessening of competition test under the Commerce Act 1986 exists to protect the competitive process. It is not focused on protecting individual firms.

A lessening of competition (which includes a hindering and/or prevention of competition) – or an increase in market power – may manifest in a number of ways, including higher prices or reduced services. Only a lessening of competition that is substantial is prohibited. A lessening of competition will be substantial if it is material, of substance, or more than nominal.

There is no hard line that separates a lessening of competition that is substantial from one which is not. What is substantial is a matter of judgement and depends on the facts of each case.

As part of determining whether there would be a substantial lessening of competition, the Commission assesses the ability of other market participants to compete effectively and the ability of prospective participants to enter the market.

The Commission makes its judgement having regard to the Commerce Act’s purpose to promote competition in markets for the long-term benefit of consumers.