What’s happening?
- In May, RAC announced our intention to enter into a 20-year general insurance partnership with IAG, which will see IAG acquire and manage 100% of RAC’s insurance underwriting business as part of the proposed partnership.
- On 11 December, the Australian Competition and Consumer Commission (ACCC) announced it will oppose IAG’s proposed acquisition of the RAC Insurance business and the insurance partnership between RAC and IAG.
- IAG has now submitted a new application for the partnership under the ACCC’s new merger control regime. RAC is aligned with IAG on this decision.
Why is RAC doing this?
RAC has explored the proposed insurance partnership with IAG because the insurance environment has fundamentally changed. The decision is grounded in three core factors:
- Regulation
- Insurance regulation has become significantly more complex.
- Insurers are required to meet higher regulatory standards and hold significant capital to protect members against large or unexpected claims.
- These requirements continue to increase, placing greater pressure on smaller, local insurers – such as RAC.
- Risk
- RAC insures exclusively in Western Australia.
- RAC currently insures close to $270 billion worth of home and motor risk, with most of that concentrated heavily in Perth.
- This creates geographic concentration risk - meaning a single major event would affect a large proportion of our members at the same time.
- By contrast, a national insurer like Insurance Australia Group (IAG) can spread risk across the country. A severe weather event in one state does not affect all customers at once, allowing risk to be balanced more effectively.
- Capability
- As a single-state insurer, there are limits to the scale and capability RAC can build on its own.
- Larger insurers are able to invest heavily in technology, systems and resilience.
- For example, as a national insurer, IAG has the size and scale to invest significantly more into technology, strengthening systems, claims capability and resilience.
- Partnering provides access to expertise and scale that is increasingly difficult to replicate independently.
- While RAC has continually fine-tuned and improved our insurance business, we believe the environment has now shifted to a point where partnering is in the best interest of our members and our people.
- This partnership would allow RAC to stay focused on our members and our work in the community, while ensuring insurance remains strong, sustainable and resilient for the future.
- We are not getting out of insurance, we would simply be changing the way it is delivered.
- Our role is to make responsible decisions that ensure RAC remains strong and sustainable for decades to come - and that’s exactly what this partnership is about.
Read the Horizons interview with Rob Slocombe, or listen to the RAC podcast.
How will this benefit members?
- Protecting members from growing risk. By partnering with a larger insurer, RAC can reduce the amount of risk it carries alone, helping to protect members against increasing claims volatility driven by extreme weather and rising costs.
- Focus on members. RAC can stay focused on members, the WA community, and the RAC brand, while insurance risk sits with an underwriter.
- Strong local presence, backed by national capability. Members would continue to access local call centres, branches and WA-based claims support, while benefiting from deeper insurance capability and resilience at a national scale.
- Ongoing investment in what matters to members - and to WA. By reducing the amount of capital RAC needs to hold to manage insurance risk, the partnership would allow us to continue investing in improved and expanded member products and services. Our focus on advocacy, social and community initiatives will also continue - supporting our purpose of making life better for Western Australians.
- Long-term sustainability. Most importantly, this proposal is about ensuring RAC can continue to offer strong, competitive and reliable insurance - not just today, but for future generations of members.
What would change for members?
- An updated Product Disclosure Statement (PDS). If the partnership proceeds, RAC members with insurance policies would receive a new PDS that lists IAG as their insurance underwriter.
- The insurance product would still be RAC-branded.
- RAC local service would remain. Members would continue to deal with RAC and RAC people when calling or visiting branches.
- IAG would also continue to maintain a significant claims handling presence here in Western Australia.
Why IAG?
- IAG has leading insurance capabilities, a clear track record in delivering an excellent member experience and competitive product offering.
- IAG brings industry expertise with this partnership allowing us, post-completion, to continue providing competitive insurance products.
- RAC people would gain access to enhanced capabilities and opportunities to enable us to deliver exceptional value to our members.
- We would also be well-placed to keep pace with industry advancements and maintain our commitment to excellence.
