IAG boss warns war could lift insurance premiums, insists RAC Insurance customers will benefit from purchase

Insurance Australia Group boss Nick Hawkins has warned of the threat of rising energy prices on premiums as he assured WA policyholders they had nothing to fear from a sale of RAC’s insurance arm. The surge in oil and gas prices is pressuring global supply chains, including building and raw material costs - key factors in determining insurance premiums. Visiting Perth on Tuesday, Mr Hawkins told The West Australian that while the impact of the Middle East war on insurance costs — particularly for home and contents cover — was still too early to call, “it’s not going to be positive”. “I would assume it’s going to drive inflationary pressure, it’s going to cause increased costs in the supply chain. . .raw materials, labour,” he said. Mr Hawkins warned of “a period of elevated costs” because of the war. “They will flow through to increased costs in Australia generally, obviously driving inflation, but in our space, I think it will impact building and repair costs, it has to,” he said. The WA visit will include a catch-up with RAC boss Rob Slocombe as IAG and the motoring mutual wait on the Australian Competition and Consumer Commission to decide on a new application by the ASX-listed to buy the RAC’s insurance arm, WA’s biggest general insurer. The ACCC rejected the $1.35 billion purchase in December, saying it would give IAG too much market power in WA and drive up premiums. However, IAG, with the support of the RAC, is having another try under a new takeovers regime that gives the ACCC room to approve an anti-competitive deal if it is seen as in the public interest. Some RAC members have taken to social media to oppose the sale, reckoning the mutual is selling out customers by offloading the insurance business to a profit-motivated group such as the IAG, which operates brands including the NRMA, CGU and WFI. Mr Hawkins, however, reckons RAC customers “will be better” under IAG ownership, reminding its critics that the Sydney-based company itself grew out of a motoring mutual, the NRMA. “This is what we do, we’re used to working with mutuals,” he said, referencing the IAG’s insurance partnership with the RAC in Victoria and last year’s purchase of RAC Queensland’s insurance business. IAG understood “the mindset of a member-based organisation . . . we know how to work across that”, Mr Hawkins said. RAC Insurance was “this wonderful brand, business and member organisation that’s deeply embedded in lots of parts of the community”. “It stands for something. But I also think it’s very hard for a super concentrated regional insurance company. . . to operate. “It’s been a successful business but the future is tougher. “A mutual has to make sure it’s there to meet the future needs of the members.” The RAC has argued that rising reinsurance costs, regulatory pressures and the added difficulty mutuals have in raising capital for expansion mean the insurance arm is better off with a financially stronger and national insurer such as IAG. Under last May’s agreement, the RAC would receive $400m upfront and a further $950m over 20 years by distributing its branded insurance products through IAG. The ACCC said the purchase would give IAG about 55 per cent to 65 per cent of the motor insurance market in WA and 50 per cent to 60 per cent of the State’s home and contents market. Mr Hawkins said the big market share reflected the success of RAC Insurance, saying “I don’t think the combination of our business and the RAC will materially change the construct of the market here in WA”. “Pretty much everyone who is a player in the east coast market does business here, West Australians have had choice.”