'Significant risk' in insurance takeover

Tower chairman Michael Stiassny says IAG taking over Lumley would create significant risk in event of another Canterbury quake scenario

Personal Finance

Tower chairman Michael Stiassny says IAG taking over Lumley would create significant risk in event of another Canterbury quake scenario

5th Feb 14, 2:48pm by Gareth Vaughan

By Gareth Vaughan

Insurance Australia Group being allowed to takeover Lumley would create "significant risk" if New Zealand was hit by another Canterbury earthquake type scenario says Michael Stiassny, chairman of rival insurer Tower.

Speaking at Tower's annual shareholders' meeting Stiassny said Tower strongly believes in competition.

"However, we do have concerns regarding recent industry developments. We are pleased the Commerce Commission is taking a close look at the proposed IAG acquisition of Lumley, given the implications for New Zealand, the insurance industry and consumers," said Stiassny.

"We believe there is significant risk from one business controlling two thirds of the personal lines market, if New Zealand was to suffer another event on the scale of Canterbury."

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.

In its statement of preliminary issues on IAG's takeover application the Commerce Commission 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.

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2 Comments

by Boatman | 5th Feb 14, 4:39pm 1391571560

I agree with Stiassny . Going further , we actually need to stop this before it happens.

With a single dominant player we Kiwi's stand to get shafted .

What we really need is a Competition Commission as a watchdog with teeth to delve into these proposed mergers , and regulate these actitivites .

The pivotal rule would be :- When you want to buy out a competitor ( or a vertical ingerated business) for say over $10,0 million , you need approval of tthe Competition Commission , and the costs are for the applicants account , not the taxpayer .

You will need to show that the merger or takeover is in the interests of the broader community or public

by Andrewj | 5th Feb 14, 4:56pm 1391572583

So many of my friends are dumping their insurance its amazing, Im looking at doing the same.

I have a friend here who belongs to an organisation that you pay $360 a month to, for health insurance. They tell you who to send the check to. He got sick last month, cost 5k, two weeks later he got 14 checks for $360 to cover the cost. Every month he gets a name to send the cheque to. Sounds like a bloody good idea to me. He was paying 2.5k a year in insurance, fish hooks everywhere in the fine print. The USA insurance sector will be gunning for them.

Im getting pissed off with the insurance sector. I pay money in the good times and know they will give me the finger in the bad. They by assets to cover them if things go bad but refuse to sell them when they do. Im sick of them.