Green Party co-leader Russel Norman wants the Government to bolster competition law, suggesting Insurance Australia Group's proposed acquisition of rival Lumley could lead to higher insurance premiums for New Zealand consumers.
Norman says the National Party led government needs to adopt Productivity Commission recommendations aimed at protecting competition in service industries.
IAG, which already owns NZI, AMI and State Insurance, announced the proposed acquisition of Lumley in December, as part of the broader acquisition of the underwriting businesses of Australia's Wesfarmers. Taking over Lumley would lift IAG's share of the overall insurance market to about 50.5% from 41.5%, increase its share of the home and contents and vehicle insurance market to 66% from 60%, and give it 40% of New Zealand's intermediated insurance market.
“It’s not healthy for industries like insurance to be overwhelmingly dominated by a single company; the Government needs to strengthen competition law to ensure families and businesses get fair prices,” Norman says.
“If IAG becomes the owner of the majority of the New Zealand insurance industry, the decrease in competition could result in higher premiums for customers and bigger profits for IAG’s offshore owners."
“The Government needs to listen to the Productivity Commission’s recommendations on boosting competition in service industries. In particular, improving section 36 of the Commerce Act to restrict the exercise of market power would help to prevent situations where industries become dominated by a single player, as is happening in insurance,” says Norman.
His comments come after Michael Stiassny, chairman of rival insurer Tower, said on Wednesday IAG being allowed to takeover Lumley would create "significant risk" if New Zealand was hit by another Canterbury earthquake type scenario.
The deal requires approval from the Commerce Commission, Reserve Bank and Overseas Investment Office.
In its statement of preliminary issues on IAG's takeover application the Commerce Commission has said it will consider whether to define insurance products and markets as national in scope, as it has done previously, or whether to modify this approach. A fresh approach would allow the consumer watchdog to take into account whether the market in Canterbury following the 2010-2011 earthquakes warrants defining a separate geographic market for the Christchurch/Canterbury region.
The Commerce Commission will also consider the scope for customers to move to alternative insurance providers if a merged IAG-Lumley raised its prices. For its part IAG says it doesn't believe the deal would substantially lessen competition in any market