ACCC's Competition Concerns Over IAG's $1.35B RAC Insurance Acquisition: Strategic Risk and Market Concentration in Australia’s Insurance Sector

The Australian Competition and Consumer Commission (ACCC) has raised significant concerns over Insurance Australia Group’s (IAG) $1.35 billion acquisition of RAC Insurance, a deal that could reshape the competitive landscape of the country’s general insurance sector. At the heart of the regulatory scrutiny lies a critical question: Will this consolidation exacerbate market concentration, potentially harming consumers and stifling innovation? For investors, the transaction underscores the delicate balance between strategic growth and regulatory risk in an industry already dominated by a handful of players.

Market Concentration in Australia’s General Insurance Sector

Australia’s general insurance market is characterized by strong growth and profitability, with gross written premiums reaching $68.0 billion in 2024, driven by rising premium prices and reduced natural disaster-related losses [2]. However, the sector is also marked by high concentration. IAG, Suncorp, and QBE Insurance collectively hold a substantial portion of the market, with IAG alone reporting revenue of $14,517.3 million in 2025, Suncorp at $13,336.0 million, and QBE at $8,036.9 million [2]. While the exact Herfindahl-Hirschman Index (HHI)—a measure of market concentration—is not explicitly stated, the dominance of these three firms suggests a moderately concentrated market.

The health insurance sector, by contrast, offers a clearer benchmark: The top five health insurers control over 80% of the market, indicating a highly concentrated industry [4]. If the general insurance sector follows a similar trajectory, the IAG-RAC acquisition could push it toward this threshold.

RAC Insurance’s Strategic Position and Growth

RAC Insurance’s pre-acquisition trajectory was one of the most compelling stories in Australian insurance. By 2024, the company had grown its national market share from approximately 35% in 2019 to 50%, driven by aggressive pricing strategies and a strong regional presence in Western Australia (WA) [3]. In WA alone, RAC held 55% of the motor insurance market and 34% of the home and contents insurance market [2]. This dominance, combined with its reputation for member-centric service, made RAC a formidable competitor.

The acquisition by IAG, which already operates in WA through brands like CGU and Insurance Australia, raises red flags for regulators. Analysts warn that the combined entity could control a disproportionate share of the WA market, where geographic isolation and limited cross-border competition amplify the risk of reduced contestability [3].

Regulatory Scrutiny and Strategic Risks

The ACCC’s concerns are not unfounded. While the regulator approved IAG’s earlier acquisition of RACQ Insurance in Queensland—deeming it unlikely to reduce competition—it has taken a more cautious stance on the RAC deal. RAC’s stronger competitive position and recent market share gains in WA contrast sharply with RACQ’s declining market position [3]. The ACCC has explicitly stated that the RAC acquisition could “substantially lessen competition,” particularly in motor and home insurance segments [1].

For IAG, the regulatory hurdles are significant. The ACCC has invited public submissions on the deal until July 2, 2025, and its final decision will hinge on whether the merger leads to higher prices, reduced service quality, or diminished innovation [1]. If the ACCC blocks or imposes stringent conditions on the deal, IAG could face reputational damage and financial losses from its $1.35 billion investment.

Implications for Investors

The IAG-RAC acquisition highlights the strategic risks inherent in consolidating a concentrated market. While the deal aligns with IAG’s long-term strategy to expand its regional footprint and leverage RAC’s distribution network, it also exposes the company to regulatory pushback and potential antitrust penalties. For investors, the key variables are the ACCC’s final decision and the broader market’s reaction to increased concentration.

A 2025 KPMG report notes that Australia’s general insurance market is projected to grow at a compound annual rate of 8.8%, reaching $93.9 billion in direct written premiums by 2029 [5]. However, this growth could be tempered if regulatory actions limit IAG’s ability to realize synergies from the RAC acquisition.

Conclusion

The ACCC’s scrutiny of IAG’s RAC acquisition underscores the tension between corporate strategy and consumer protection in a market already dominated by a few players. While the deal promises to strengthen IAG’s position in WA and beyond, it also risks triggering regulatory intervention that could reshape the sector’s competitive dynamics. For investors, the outcome of this regulatory review will be a critical inflection point, with implications not only for IAG but for the broader Australian insurance industry.

**Source:[1] IAG Limited – RAC Insurance Pty Limited [https://www.accc.gov.au/public-registers/mergers-and-acquisitions-registers/public-informal-merger-reviews-register/iag-limited-%E2%80%93-rac-insurance-pty-limited][2] General Insurance in Australia [https://www.ibisworld.com/australia/industry/general-insurance/526/][3] Analysts warn IAG faces higher hurdle on RAC deal [https://www.insurancenews.com.au/corporate/analysts-warn-iag-faces-higher-hurdle-on-rac-deal][4] The Top Health Insurance Companies in Australia by Market Share [https://fairhealthcare.com.au/blog/top-health-insurance-companies-australia/][5] Australia's general insurance market to reach $93.9b by 2029 [https://insuranceasia.com/insurance/news/australias-general-insurance-market-reach-939b-2029]